2012 volumes set to match 2011

Given the volume of deals done at the end of 2011 a slightly more subdued start to 2012 is not unexpected, especially as conditions in the global economy have not improved markedly. Decision making at the end of the year would have been constrained given sentiment at that time which has undoubtedly fed through to lower Q1 volumes.

2012 is certain to be dominated by more major policy responses from governments looking to bring economic growth back to beleaguered economies. Although the indicators in the US have improved recently there remains a lot to do, as there is in the Eurozone.

For commercial property the on-going bank deleveraging and increasing level of regulation will continue to weigh on the volume of lending, even in emerging economies where policy drivers tend to have a more immediate effect.

Despite the subdued start to the year we have maintained our forecast of circa $400 billion for the full year (Figure 12) with the Americas looking to offer the greatest prospect of outperformance at this stage.

As mentioned earlier in the report prime markets have benefited the most globally over the last two years, with little or no demand for secondary stock. Given the level of pricing in prime markets (Figure 13) value is increasingly difficult to find and this may see investors consider more value add opportunities. We have seen evidence of this with the increasing number of deals in the industrial sector this quarter.

One of the diversions, for private equity and third party managed funds in particular, is the on-going loan sales by banks which may divert funds from direct investment.

Fund flow data continues to show a move from equities into more fixed income products and consistent with our analysis a move from more emerging markets into developed economies. At this point in the cycle it seems as though distressed opportunities continue to draw the attention of investors.