Allianz Real Estate has armed itself to acquire more direct property investments in Asia’s emerging markets, especially China, and the fruits of that investment are showing.
The German investment firm, which develops and manages a global real estate portfolio on behalf of the wider Allianz group's insurance companies and pension funds, had total assets under management of €67.1 billion ($74.1 billion) as of June-end.
About 5% of these assets are located in Asia and the long-term goal is to raise this allocation to between 5% and 10%, Rushabh Desai, Allianz Real Estate's chief executive in the Asia-Pacific region, told AsianInvestor.
“Fast-growing markets like China, India and Southeast Asia will comprise 50% to 60% of our investments in Asia-Pacific,” he said.
“China will continue to be the largest within this bucket,” he added. Indications are that it could comprise up to 40% of the total.
And to execute on this plan Allianz Real Estate is building its in-house capabilities to source the right assets both in scope and specific markets. But it's also working with partners.
Among its recent acquisitions is that of a majority stake in Ronsin Technology Center, an office complex in Beijing’s Wangjing Business District. The investment was done through a joint venture with Alpha Asia Macro Trends Fund III – a fund managed by Alpha Investment Partners, the private fund management arm of Keppel Capital.
The two parties will take a 85% stake of the €1 billion asset. Allianz Real Estate will own a 62% share and is also an investor in the Alpha fund. The remaining 15% interest will be retained by the seller, Shanghai-based office real estate firm D&J China.
“Occupational demand from domestic technology or innovation firms continues to be strong [in Beijing], despite the larger macro geopolitical volatility,” Desai said. “Wangjing is a well-established sub-market for IT, technology and innovation firms, and is in close proximity to the airport.”
In addition, Beijing's northeastern Wangjing sub-district has seen persistent occupational demand amid tight office supply. The current vacancy rate for grade-A assets is less than 6% and the sub-market has experienced about 20% rental growth since 2015, Desai said.
That contrasts with the rest of the city. In the second half of 2019, global real estate broker Colliers expects a total of new office supply in Beijing of 840,000 square metres. This could push up the general vacancy rate to 15.1%, a record-high level for the decade.
“Average rents should also be pulled down slightly. Taken together, we expect these three factors to lead to a more tenant-favourable market,” analysts at Colliers wrote in their outlook for second half of 2019.
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The Wangjin investment follows Allianz Real Estate’s July 2018 acquisition of another technology-focused office complex in Zhongguancun Software Park in the northwestern Haidan district of Beijing.
The park is a hub for international and domestic technology companies including Microsoft, IBM, Lenovo, Baidu and Didi. The investment was the firm’s first direct acquisition of a Beijing office asset.
To help with its office push, Allianz Real Estate has required an increase of in-house capabilities dedicated to China’s growing technology sector and other Asian megatrends.
In 2016, Desai said he had two investment professionals to help him source Asia Pacific investments. Today, his organisation comprises about 25 professionals spanning acquisitions, asset management, transaction services, risk management and operations.
It has been part of a wider global expansion by Allianz Real Estate that has helped to grow its total AUM more than fourfold from just €16 billion in 2008.
“Three years ago we established our strategic investment framework and we continue to stay on course to build a diversified portfolio based on income-producing assets whilst balancing [our] overall return profile via selective total return-driven investments,” Desai said
“We will continue to seek attractive risk-adjusted opportunities across the risk-return spectrum, including more direct or joint-venture investments in the core and core-plus space, and continue with our indirect investments in the value-add and opportunistic space.”
With regards to future investments, Desai said he is open for partnerships and joint ventures with other asset owners.
“Our fully-integrated in-house capabilities and an impeccable execution track record also opens up potential for other like-minded institutional investors to invest alongside Allianz in the Asia-Pacific region,” Desai said.
In August, Allianz Real Estate launched an Indian closed-end office development platform with local managing partner Godrej Fund Management and Dutch pension fund manager APG. A strategic partnership was also launched in May 2019 with Singapore-based logistics specialist GLP in China, and Japan.