Allianz Real Estate targets China and Japan despite the challenges
Allianz Real Estate remains committed to China and Japan, despite the government crackdown on China’s technology sector and the growing scarcity of international staff in Japan.
Recent months have seen a clampdown by Beijing on China’s largest technology companies which have achieved close to monopoly positions in the sector.
However, Danny Phuan, head of acquisitions, Asia Pacific, and head of China, at Allianz Real Estate, the captive investment and asset manager for the Allianz Group, told AsianInvestor the changes would shift its office allocation focus from specialist business parks, especially those focused on technology and life sciences tenants.
He said the clampdown would create commercial opportunities for smaller technology players.
“In the longer term, we see small and mid-sized technology companies actually flourishing as a result. Our strategy remains intact, but in light of some of the policy moves in China, we are looking more carefully at tenancy profiles,” he said.
LOGISTICS A FOCUS
Phuan said the focus on logistics remained a pillar of the company’s Chinese strategy.
But he emphasised the importance of finding assets that had sourced their energy from renewables, given the large power needs of cold storage facilities.
“Some assets may not meet our requirements, but if there is a clear pathway [to improving] them we would consider it,” he said, adding that, for non-cold storage logistics, power consumption was less of an issue.
Allianz’ is one of several investors to improve the quality of its assets’ environmental performance in China with the use of green leases. Across the two business parks that it owns, the proportion of leases that are green increased from 8% to 25% in the year to Q1 2022.
Since February, Allianz Real Estate has increased the size of its local Japan team, which is based in Tokyo, from six to nine, and is looking to expand its team further. But, growing activity by international investors in Japan has increased the competition for talent.
“There are lots of international investors who [have arrived] in Japan, especially in the multi-family space, and are looking to hire good people locally,” said Phuan.
He added that the key combination of skills was experience in underwriting and asset management, a good understanding of the sector in Japan, an established local network, fluency in both Japanese and English, and experience in working in an international company.
“It is particularly hard to find those with both a local network and [fluency] in English,” he said.
He also pointed to cultural challenges. “The culture of traditional Japanese businesses is more top-down. It is especially [hard to find] younger staff – in their 30s and 40s - who are able to express opinions and challenge me. I’m not [based locally]; they need to give me on-the-ground feedback,” he said.
Mary Power, principal consultant and head of the property research team at Jana Investment Advisors in Melbourne, told AsianInvestor that hiring good local talent was a pre-requisite for asset owners expanding into Asia. “There is significant demand for staff for these offices to open. Real estate is a local game in many ways, people must be able to see the deal flow, and form relationships on the ground,” she said.
She said that Australian super funds were one group of investors competing for talent in Japan and across Asia, as mergers created larger funds, increasing the rationale for investing overseas.
“If you are a growing fund, size is really a big issue: you can’t deploy all of your money at home; you have to be open to all regions,” she said, adding that a number of large super funds had recently opened new offices across the region.
Part of the challenge for all investors is luring talent from asset managers and investment banks, but Power said this was more challenging for super funds who are under pressure from the regulators to lower fees.
“In the war for talent, there is no doubt that good people must be enticed from fund management, and there [is] often a differentiation in salaries. Given the focus on fees, this is difficult,” she said.
Phuan re-iterated the importance of finding investment partners in the wider Asia region who could match the ESG focus of Allianz, as well as an adequately long-term investment horizon. In practice, he said, suitable partners were likely to target similar long-term investment trends to Allianz, including urbanisation, infrastructure and digitisation.
“A key joint venture partner would have to have the same kind of perspective in this regard, as well as [emphasising] sustainability element,” he said