China state funds drive rising Asian flows into property
Asian institutional investors almost doubled their level of investment into international property in the first half of 2017 to $45.2 billion, largely on the back of Chinese demand, according to CBRE Research.
The research arm of the property services firm said mainland sovereign wealth funds (SWFs) poured $25.6 billion into global real estate between January and June, up from $10.1 billion in the first half of 2016. Chinese property firms and conglomerates were also sizeable buyers, noted CBRE.
All told, Asian investors allocated 98.4% more into global real estate than the $22.8 billion they conducted in the first six months of last year. Seventy-four percent of this amount was invested into transitions of at least $250 million, up from 56%.
Property remains a heavily favoured alternative investment among Asian asset owners, who value its tangibility, the income it provides from rent and its diversification benefits.
Hot sector
Will Rainey, head of investment strategy for Asia at consultancy Willis Towers Watson, said: “We have a private markets research team that is at full capacity and turning away work, a lot of which is from China and particularly insurance companies.”
The most notable example of mainland state fund activity in real estate took place in June, when China Investment Corporation bought pan-European logistics company Logicor from real estate funds of private markets giant Blackstone for €12.25 billion ($14.78 billion).
However, insurers such as Anbang and Ping An have also made sizeable offshore property acquisitions in the recent past, and some fund managers expect to see more.
Aisling Keane, head of alternative solutions for Asia Pacific at State Street, estimated in January that Asian asset owners could potentially increase their allocation to real estate from the typical figure of 6% to as much as 10% to 15%.
Meanwhile, Rainey noted that property investors have tended driven partly by the premium these assets offer, but also because of a desire for diversification and as a result of a follow-the-leader mentality among some asset owners.
“There isn’t really a strong view that real estate and private markets are going up,” he noted. “But they still offer a premium [over public markets], even if it’s not as much as before. And often in Asia once one investor starts making a new type of investment, it has a domino effect and others follow.”
Geographic focus
Asian appetite for property has favoured Europe, the Middle East and Africa (Emea), followed by the Americas, according to CBRE. The two regions received $21.9 billion and $11.3 billion in allocations, respectively, in the first six months of the year. CIC’s purchase of Logicor accounted for a big chunk of the Emea portion.
Moreover, Asia institutions account for a big proportion of global real estate investment. CBRE estimated that almost two-thirds (64%) of Emea capital deployment and 35% of Americas property investments were sourced from asset owners in Asia.
Demand for investments into Asian assets also grew healthily, rising 23% year-on-year to $10.4 billion, said CBRE.
Office space and logistics were by far the most popular areas for property investment among Asian asset owners, attracting 44% and 34% of committed capital in the first half, respectively. This was followed by residential (7%), hotels (7%), retail (6%) and sub-sectors like elderly-care housing (2%).
As for how to access real estate, Rainey recommended generally using funds but not funds of funds, because the latter products involved a double layer of fees and posed a risk of over-diversification.