Asset owners in Asia target European residential property

Asian investors including Aware Super, LGIAsuper, NZ Super and an Asian insurer have been increasing their allocations to Europe’s residential property sector this year.
Asset owners in Asia target European residential property

Investors in Asia have been looking to allocate further into Europe whether through direct or indirect investment, particularly in residential assets as the future of the traditional office remains uncertain.

In the six months to September this year, Asian investors allocated $447 million to the sector, compared with $223 million in the whole of 2020, according to real estate data firm Real Capital Analytics. Over this period, allocations to residential real estate comprised 9% of total property allocations to Europe, up from 5% over the preceding two years.   

Alek Misev, portfolio manager for property at Aware Super, Australia’s second largest super fund, told AsianInvestor that the fund was targeting more than five new deals per year in Europe’s residential sector.

“We have big plans to grow our European allocation. Our preferred route is taking direct stakes in operating platforms alongside other like-minded investors so we can combine our respective knowledge and grow these platforms together over the long-term.”

The fund, which has A$1.5 billion ($1.09 billion) invested in European real estate out of a total global allocation of A$10 billion, is aiming for four to five deals per year via City ID – its serviced apartment platform based in The Netherlands. These will focus on sites across the UK and continental Europe, in key cities such as London, Dublin, Lisbon, Copenhagen, Madrid and Barcelona.

Misev said it will also be active through Vivenio, a build-to-rent multi-family platform, based in Spain to which it €600 million ($676.91 million) in June. “With Vivenio, [the] plans are to expand significantly across the Madrid area, focusing on developments and existing high-quality assets that come to market,” said Misev.

Misev said the fund favours growing allocations by adding money to the fund’s existing platforms in Europe, where it invests alongside Dutch pension provider APG Asset Management, and through new platform investments that the property team is actively assessing.

The fund took advantage of lack of activity in serviced apartments last year when it acquired a 45% stake in City ID, a European apartment operator with 250 units in Amsterdam, in September 2020, with APG also taking a 45% stake. Each stake reportedly cost €100 million. “There was not much happening in the [serviced apartment] sector; we saw it as a good time to grow the business,” he said. 

NZ Super, the New Zealand sovereign superannuation fund with NZ$61 billion ($42 billion) AUM, is also increasing its allocation to Europe’s residential sector, including student and senior housing.

“As part of our global real-estate strategy we have targeted the living sector in Europe – where people make their homes at various stages of their life, rather than solely residential. The living sectors are less established in Europe and also less institutionalised, but are now attracting more capital due to their supply-demand fundamentals and non-cyclical drivers,” said Toby Selman, senior advisor for real estate at the fund.

Earlier this year, NZ Super invested €150 million with a European real-estate fund managed by Deutsche Finance International (DFI), the European private equity real-estate firm headquartered in London, which will invest in value-add real estate in western European cities. The portfolio is expected to comprise a mix of living (including residential build-to-rent and student housing), future workspace (including life sciences, mixed use, office) and lifestyle (including hospitality) assets.

Asian insurers are also seeing increasing potential in Europe’s residential sector. The head of Asia for a large European insurer, who asked not to be identified, told AsianInvestor that the company’s Asian subsidiaries were attracted to the apartment market in Europe because the future of the traditional office was in doubt and there was growing demand for larger homes across the developed world.

“Most definitely we are looking to [increase] investment when compared to offices,” he said.

“The trend to working from home has accelerated people’s wishes to upgrade to a larger home,” he said, adding that countries where families consider a second home were particularly attractive. “Office buildings relying on corporates are suffering, although those with long-term serious tenants are doing better,” he said. 

Investors from Asia are also looking at sectors that provide indirect exposure to Europe’s residential property sector. Fiona Mann, responsible for ESG at LGIAsuper, which allocates to European real estate via external managers, said the fund was investigating investment opportunities with responsible lending funds in the UK, which provide competitive levels of home financing for those eligible for affordable housing and financing to developers to renovate properties for affordable housing or to improve their carbon efficiency.

“We have spoken to several managers seeking seed capital in the UK,” she said, adding that the fund was also in conversation with similar managers in Australia.

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