Institutional investors chase higher-risk APAC property deals
Institutional investors keen on Asian real estate are seeking out higher risk-higher return opportunities, turning away from core sectors towards value-added strategies, in the face of cooling investor sentiment to the sector.
The investment intentions survey 2024 Asia Pacific, published by the Asian Association for Investors in Non-listed Real Estate Vehicles (ANREV) in mid-January, found that 63% of investors prefer the value-added style for investment in Asia Pacific in 2024.
This is the highest level since 2014 and significantly higher than in the US, where 48% of investors favoured value-added strategies, and Europe, where the proportion was 55%.
MOVING AWAY FROM CORE
“Interest for value added strategies appears to have been drawn away from core strategies which was the preferred investment style in 2023 when the global markets were just emerging out of the pandemic,” noted the report, which surveyed 17 institutional investors domiciled in APAC – mainly pension funds, with some insurance companies and family offices.
Neil Brookes, global head, capital markets, Knight Frank, in Singapore, said that APAC investors are increasingly favouring value-added and opportunistic strategies as they seek avenues that can generate substantial returns in a higher interest rate environment.
Knight Frank
“This shift reflects the anticipation that more assets will be available at relatively attractive prices,” he said.
CBRE’s 2024 Asia Pacific Investor Intentions Survey, which polled more than 510 investors across the region in November and December, reported a similar trend, with more than one in four respondents identifying value-added as their favoured strategy for this year, ahead of core, core-plus, opportunistic, distressed assets and non-performing loans, and real estate debt.
That report noted that, while core assets in Tier 1 markets remain attractive, investors broadly felt prices were still too high to match the increase in the cost of finance and steep price falls for equivalent assets in the US and Europe.
“With most investors in Asia Pacific looking for double digit target returns, investors have turned to value-added and distressed assets/ debt solutions,” the authors wrote.
OPPORTUNITY SET
Peter Hobbs, managing director of private markets at bfinance in London, pointed to the growing size of the market for value-added opportunities, according to research by the company, and emphasises the greater appeal over distressed opportunities in the region.
bfinance
“Over the past three years, over 60 Asia-focused value-added and opportunistic funds were closed, with a total capital raise of $60 billion, and there are currently a further 50 such funds in the market seeking to raise over $50 billion,” he said.
For investors seeking higher growth, in a region where with the exception of China, prices have not yet fallen to distressed levels, value-added strategies offered a compelling proposition, he added.
“Although markets have suffered from weaker growth and, with the exception of Japan, rising rates, the cycle is far milder than that being experienced in US and Europe.”
“There is more focus in the more developed real estate markets on core/core+ and value added in those sectors benefiting from structural demand such as logistics, multifamily and alternatives such as healthcare,” he said.
WANING INTEREST
The increasing appeal of value-added strategies comes against the back drop of waning interest in the real estate sector by Asian institutional investors.
About 31% of institutional investors quizzed in the ANREV survey expect to decrease their real estate allocations over the next two years, while 25% expect to increase them.
This is the first time that the survey, which dates back to 2009, has found more investors planning a decrease than an increased allocation.
AsianInvestor reported in January that more than 40% of APAC investors will be net sellers of real estate this year, the highest proportion since records began in 2014, according to CBRE’s 2024 Asia Pacific Investor Intentions Survey.