Property investment advisers predict global asset owners will continue to raise their investments into Asia’s real estate sector this year, extending the strong numbers recorded over the first three months of 2021.

According to Real Capital Analytics, investment transaction volumes for Asia Pacific property in the first quarter of 2021 increased by 15% year on year, to $43.4 billion.

Terence Tang, managing director for Asia capital markets and investment services for Colliers in Singapore, predicts the asset class will grow by another 10% to 15% over the rest of the year, meaning transaction volumes will end up between $196 billion to $205 billion, versus the $178 billion recorded in 2020.

Tim Graham, JLL

Similarly, Tim Graham, head of capital strategies, Asia Pacific at JLL in Singapore, also believes Asia’s real estate investment market will grow by 10% to 15%. Henry Chin, global head of investor thought leadership and Asia Pacific head of research for CBRE in Hong Kong, is a little more conservative, forecasting a rise of between 5% and 10%.

The rise in Asia Pacific property interest is part of a gradual global investor trend to gain greater exposure to the private asset class. JLL estimates real estate allocations will account for 10.9% of global institutional investors’ assets under management by the start of 2022, up from 10.6% at the start of 2021 and 10.5% at the start of 2020.

CBRE estimates that global private equity funds alone have $300 billion in dry powder reserved for real estate deals, although no number was available for Asia alone.

Asia looks set to see more than its fair share of the new flows, in keeping with greater global interest in the region, said Graham.

“The last decade has seen real estate activity rise across Asia Pacific twice to three times faster than growth in Emea (Europe, Middle East and Africa) and the US,” he told AsianInvestor. He said global investors have been attracted by a broadening in the complexity of transactions in the region, with fund re-capitalisations and joint ventures now common.

Asian fund managers have been raising assets fast from local investors. Joseph Lee, co-chief executive and president of Seoul-based Igis Asset Management – which buys property in Korea on behalf of local institutional clients – said the company intends to close a logistics fund of $300 million and a data centre fund of $120 million in the coming weeks. It already closed a $110 million mezzanine debt fund in December.

Joseph Lee, Igis

“We have seen active fund raising in recent months from Korean institutions focused on domestic real estate,” Lee told AsianInvestor. “Many investors have annual deployment budget that they must spend during the year. Since the pandemic happened in March, many had a lot of trouble travelling abroad and so have been allocating capital [domestically].”

Further regional property investment is likely. According to CBRE’s Asia Pacific Investor Intentions survey, published in April, 59% of respondents reported they would increase investment over the previous year, only 8% said they would invest less (the survey quizzed 492 mainly Asia Pacific-based investors during November and December 2020).

Cross border flows from Asian investors are increasing: in the first quarter of 2021 they totalled $3.3 billion, 31% higher than the first quarter in 2020, according to JLL.

Regional investors have seen the value of reaching beyond home markets. “The benefits of portfolio diversification – both at a sector level and geographic level – were highlighted during the pandemic as certain markets and economies and sectors were clear outperformers in terms of liquidity and value,” said Graham. 

EUROPEAN INTEREST

The appeal of Asia’s property market has also attracted major asset owners from outside the region.

In June 2020, Allianz Real Estate, the captive investment and asset manager for real estate within Allianz Group, announced a strategic partnership with Korea’s National Pension Service (NPS) to establish an investment platform of $2.3 billion – with a capacity of $4.6 billion – to build a diversified core portfolio of high-quality properties in the Asia Pacific region.

Danny Phuan,
Allianz Real Estate

It was the first third-party equity fund to be raised for Allianz Real Estate and led to a subsequent $200 million of third-party capital raised from another like-minded institutional investor, which the company declined to name, for a co-investment sleeve to invest in core Japanese residential property.

“Asia Pacific’s markets have continued to be active despite Covid-19,” said Danny Phuan, head of acquisitions, Asia Pacific, Allianz Real Estate. He points to long-term macroeconomic and demographic fundamentals in the region as well as a  high levels of savings and infrastructure investment 

“Real estate liquidity has remained high, resulting in competition and increasing capital value across most sectors. Asian property owners remain well capitalised and regional institutional interest remains high, driving mega trends and negative risk-free rates, which provide real estate yield support.”

This article has been updated to clarify the full job title of Henry Chin of CBRE.