European instos eager for Asian property, say experts

Asian real estate investors continue to scan global property markets in search of yield at the same time as the Asian real estate market is gaining broader appeal and higher allocations from pension funds and sovereigns in Europe, participants at the MIPIM Asia Summit held on November 29 told AsianInvestor.  

While finding value in gateway city markets is challenging, investors remain optimistic about property pricing in major European capitals such as London and Paris, investors, general partners, and consultants at the Hong Kong industry gathering said. 

Despite the growing security concerns and dangers posed by Brexit, Timothy Tsui, director of Hong Kong family office Arbutus, said there was still strong appetite for London property assets from other Chinese family investors that he has spoken to. 

He acknowledged that Brexit would likely spur an exodus of banking staff, which would have a dampening effect on residential and commercial property prices in London, but said investors were anticipating that this would present a buying opportunity.

Major Asian asset owners have also been keen investors in overseas real estate in the past few years. According to industry tracker Real Capital Analytics (RCA): after hitting a trough of nearly $35 billion in 2009, outbound investments from the region have grown to almost $300 billion in 2016.

Singapore’s GIC has been the biggest Asian institutional investor over the last seven years, pumping $10.84 billion into property investments globally, according to RCA data.

Asia appeal growing

Demand for Asian real estate assets from global institutions is also growing, according to experts. Meaghan Nichols, managing director and global head for real assets at Cambridge Associates, noted that while traditionally at least 50% of institutional capital committed globally would go to the US, demand for Asian real estate exposure has been steadily increasing and now accounts for 20% of allocations.

Much of the increase in demand has come from pension funds and sovereigns in Europe who are making their first allocations to Asia, she noted. 

Nichols said large European pension funds and sovereign investors in countries such as Germany and Switzerland are starting to become more active globally and Asia is one of the most attractive areas.

“These are normally pension plans of significant size and are willing to put many fund managers into their portfolio to improve geographic and manager diversification.”

Christina Gaw, director of Hong Kong-based fund manager Gaw Capital also acknowledged the European influence. She said that while 70% of commitments used to come from the US in earlier rounds of fundraising, allocations are now more evenly split between investors from the US, Europe, Middle East and Africa as well as Asia.

Moreover, UK firm Aberdeen Standard Investments added to its real estate team in Singapore in November in anticipation of rising demand from European institutions for Asia-Pacific property.

However, sovereign investors and pension funds are challenging to serve because of the level of due diligence and corporate governance they insist on, said Gaw. “If you want to get the pension fund money, it’s not that easy because they focus much more on the process; it’s not just a question of presenting them with a good deal.".

More recently, Asian insurance companies have shown marked interest in regional real estate, said Gillian Chee, fund manager at Singapore-based SC Capital Partners. “They are not just looking for a higher yield, they are concerned about the sustainability of the income.”

Non-traditional assets in play

Asset owners are also increasingly expanding the scope of what they consider traditional core assets in Asia Pacific real estate, according to Suchad Chiaranussati, managing director of SC Capital Partners in Singapore.

In Japan and Australia, for instance, the main markets for overseas buyers, investors are increasingly interested in the logistics industry and starting to treat warehouses as core real estate.

There is value in non-traditional real estate assets, he added, pointing to growth areas such as self-storage and student housing. “We feel as the market matures in Asia Pacific, these assets are agnostic to economic cycles and are reflective of demographic changes taking place.”

Arbutus’s Tsui, meanwhile, is focused on opportunities generated by the growing influence of financial technology in in Asia’s retail business. While several observers have predicted the death of traditional retail, he believes quality shopping malls will remain a key destination for millennials, despite the growth of online retailing. 

He sees investment opportunties in companies that help retailers capture big data about their consumers.