Sun Life HuBS sees dislocations in US real estate amid high interest rates

A high interest rate environment could make the US real estate market an attractive option for insurers under Hong Kong’s incoming regulatory regime.
Sun Life HuBS sees dislocations in US real estate amid high interest rates

Asset owners, especially those from Hong Kong insurance firms, could potentially reap substantial benefits from the US commercial real estate market due to the high interest rate environment.

Surging interest rates, particularly in the US, have stressed the real estate market, leading to significant price drops as the Fed hikes rates.

Shiuan Ting van Vuuren
Sun Life International HuBS

The high interest rate climate has created a lot of stress in the real estate market, particularly in the US which is leading to significant price drops as the Fed hikes rates., Shiuan Ting “ST” van Vuuren, chief investment officer at Sun Life International HuBS, said on stage at AsianInvestor’s Insurance Investment Briefing Hong Kong on March 19.

Hong Kong's insurance companies are also poised to benefit from the new risk-based capital (RBC) regime, which is set to take effect in the second half of 2024, according to van Vuuren.

Within the upcoming RBC framework, real estate assets will be facing a relatively low capital charge measured up against other asset classes beyond fixed income.

“The real estate asset class capital charge is actually relatively quite low at 25% charge when you compare to, say, public equities or private equities depending on developed or emerging, where the capital charge could be 40 or 50%,” van Vuuren said.


The views of van Vuuren match those of real estate services firm CBRE’s US Real Estate Market Outlook 2024 report.

“Compelling opportunities will emerge for commercial real estate investors in 2024, as high interest rates and an economic slowdown—perhaps even a mild recession—lead to bargain pricing for certain assets,” the report states.

Secondary office assets are seeing sharply lower pricing due to rising vacancies, also influenced by hybrid working arrangements having gained some foothold.

The report predicts that once interest rates begin to fall and inflation eases further, rehabilitation or conversion of underperforming office buildings to other uses will become more attractive and financially viable.

Still, van Vuuren stressed the need to do your homework and due diligence, a process which has kept Sun Life HuBS in a stage of observation for now.

“You still have to be extremely careful. We would not go into US offices right now unless it was with an existing sponsor that we know well and a have long history with. We are still not at the point that we would be comfortable going into new real estate,” she said.


US commercial real estate investment volume fell by 44% year-over-year in Q4 2023 to $81 billion. For the year, volume fell by 52% to $348 billion, the lowest annual total since 2012, CBRE’s latest quarterly update showed.

Inbound cross-border investment decreased by 30% year-over-year in Q4 to $4.7 billion. An indication that there could be room for Hong Kong insurance companies and other Asian asset owners’ capital to be well-received.

With a disclaimer of proper due diligence, that is the opportunity that van Vuuren sees in the current matrix between high interest rates and favourable capital charges emerging for Hong Kong-based insurers.

“If you combine those together, and if the companies have the ability to deploy into real estate through mandates or funds, they could potentially see a rare case of stars aligning where the RBC is encouraging to go into real estate in the current environment where you might have some price correction and pick up some discount,” van Vuuren said.

The headline on this story has been changed.

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