Asian institutional investment into global real estate may reach $150 billion in the next five years, as they diversify their portfolios into lower-risk assets, according to new research by CBRE.
The ambitious forecast by the property services provider represents a huge jump from the $30 billion the region's institutions have made in direct real estate investments in the past five years, by CBRE's estimates. It will mean a big acceleration from the $5.4 billion invested into property by Asian institutions last year, which is double the $2.6 billion in 2010.
CBRE reckons Asian institutions are underweight the asset class, with an average allocation of just 1.7%, compared with 6-8% for their counterparts in North America and Europe.
It calculates that if the average allocations rose to 2.5-3.5% in the next five years for Asian institutions, which would in that period see a 4-6% annual increase in assets, this could potentially translate into inflows of $150 billion or more in direct and indirect global property assets.
While most of the investment by Asian institutions has been within their home market, foreign markets – particularly major cities in Europe and North America – are likely to benefit from future inflows into property, says Chris Ludeman, CBRE president of global capital markets.
“The next few years will see a number of new entrants to leading global real estate markets such as London and New York,” says Ludeman, citing Japanese institutions, and insurance firms from China and Taiwan, as likely investors.
CBRE sees the growing impetus to invest abroad stemming from several factors. They include an easing of overseas investment restrictions that apply to some Asian insurance companies and pensions, and also the fact that a large proportion of investable property in Asia is owned by large real estate companies. Portfolio diversification and a greater shift to low-risk assets are additional drivers.
CBRE expects Asian sovereign entities to expand their foreign property portfolios in the coming years, citing a number of major acquisitions of office towers last year. They include the Hong Kong Monetary Authority’s $444 million purchase of Avant Seine in Paris, and its joint acquisition of a 92% stake of San Francisco’s 101 California Street with Government of Singapore Investment Corporation for $860 million.
Meanwhile, London property was high on the shopping list for mainland China sovereigns last year, with China Investment Corporation buying Winchester House for $401 million and Gingko Tree Investment – a subsidiary of the State Administration of Foreign Exchange – acquiring Drapers Gardens for $438 million.