Aberdeen Standard Investments (ASI) is anticipating rising demand from European institutions for Asia-Pacific property and has added added a fourth member to its direct real estate team in Singapore.
The newly merged UK firm is the second biggest property investment manager in Europe with £44.8 billion ($59.3 billion) in real estate AUM globally, but it has just £82 million of that in Asia Pacific. This reflects the minimal exposure of European asset owners to property in the region as a result of complexities related to tax, currency and culture.
But ASI expects the situation to change as they seek higher yields and more global diversification.
“Mainstream insurers and pension funds in Europe have largely not got into Asian real estate in any material scale, so it’s obvious that there are opportunities there,” said Andy Allen, head of global property research and strategy at the fund house.
After all, he noted, Asia is roughly a quarter of the global property market with some $2 trillion in professionally managed real estate investments, according to data provider MSCI. Japan accounts for the biggest chunk of that, with $729 billion, making it the second biggest single property market after the US.
Eyeing mature markets
ASI’s main focus, at least initially, is on Australian and Japanese real estate. Before Standard Life Investments merged with Aberdeen Asset Management, the former put in place a four-strong team in October last year—its first direct property expertise in the region—and the combined group has just added another.
Robert McMickan joined ASI this month as a transactions manager to cover the Australian market, working closely with fund manager Ted Roy, who manages assets in Australia for the firm’s global real estate fund.
McMickan is responsible for direct property investments across Asia Pacific. He joins from fund house Investec, where he was responsible for real estate transactions in Australia and New Zealand, and previously worked with Sydney-based property investor and developer Mirvac Group.
David Paine, Edinburgh-based global co-head of real estate, told AsianInvestor that ASI hopes to leverage its combined capabilities and distribution in Asia to build its allocation to property assets. That will be on top of its existing real estate multi-manager business in the region.
It does not have a target for how much it plans to invest in the region, said Paine; that will depend on the level of demand, about which he is optimistic. “We have a lot of clients outside the region who trust us and see Asia Pac as we do, strong long-term growth opportunities,” he added.
ASI wants to expand its coverage of real estate generally in Asia Pacific, he said, but is focusing on core or core-plus assets in Australia and Japan because it believes the initial demand will be for investments in mature property markets.
The firm has not done many direct property transactions in Asia: three in Japan and four in Australia, of which it still holds three and three in Tokyo, of which it still holds one. It has executed these through its global real estate fund, which was set up in 2005, but has not executed any deals in Asia since the Singapore team was set up last year.
Taking on some risk
The deals that Aberdeen Standard has done have “typically had some active management potential—such as leasing risk—where we can get some pick-up in terms of return”, said Paine. For example, if a building is for sale but it has a major tenant’s lease about to expire or it needs work to be done, it can be acquired more cheaply.
He added: “We want to have the capacity to take on those assets that are not purely about buying a shiny new office building with an existing income stream.”
Other investors, such as Australia’s Future Fund, have taken a similar approach in private markets as competition for illiquid assets has soared in recent years: buying real assets, renegotiating contracts or making improvements, and then selling them on.
In fact, Paine said, ASI would like to be able to develop projects in in Asia Pacific as it can in Europe. “[That] would be a very good way of originating assets and achieving a premium return by virtue of taking a bit of risk.” But that is some way off, he noted.
Asked which sectors the Asia team is focusing on, Paine cited logistics as one area, noting that the imminent launch of Amazon in Australia would be one driver of warehousing demand. ASI is also looking selectively at certain office markets in Australia.
Of course, the firm will face challenges ramping up its Asian real estate exposure, given the diverse nature of the region.
Australia and Japan are certainly very different markets, said Anne Breen, Edinburgh-based head of real estate research and global funds. The former is a very sophisticated, transparent and easy for foreigners to invest in, while Japan is more challenging, she said. It is not a brokered market like the UK or other international property markets, added Breen, so having a local partner—in ASI’s case, Sumitomo Mitsui Trust Banking—is crucial.