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Asia-Pac institutional investors seen doubling property portfolio

CBRE expects them to pump US$240b more into real estate by 2020, taking the total to US$500b

In October, Chinese Anbang Insurance Group acquired Waldorf Astoria Hotel in New York for US$1.95 billion, the largest hotel purchase ever by an Asian investor in the US.


INSTITUTIONAL investors in the Asia-Pacific are set to shore up their real estate investments globally by another US$240 billion by 2020, taking the total to US$500 billion - nearly double the US$260 billion invested as at end-2014.

Fuelling that trend has been the investors' search for higher returns beyond the traditional investment channels, a desire for long-term stable returns and a greater need to mitigate increasing financial burden amid an ageing population, CBRE said in its report.

In addition, some policies in markets such as China, Taiwan, South Korea, Japan and Hong Kong have made it more conducive for insurance companies and pension funds to undertake real estate investments.

CBRE's projections are based on the assumption that these investors' allocation to real estate will rise from 2 per cent to 3 per cent along with a 5 per cent annual growth in total assets under management (AUM) to US$18.6 trillion by 2020. Their AUM was growing at 10 per cent over the last five years.

As at end-2014, Asia-Pacific sovereign wealth funds (SWFs), pension funds and insurance funds controlled about US$14.8 trillion in total assets. Their total asset allocation to real estate at 2 per cent is well below the 5-7 per cent allocation by their peers in developed markets outside of the region.

"This allocation gap, combined with real estate's attractive risk-adjusted returns, is why we are seeing an acceleration of investment plans by institutional investors not just globally but regionally as well," said Marc Giuffrida, executive director of CBRE Global Capital Markets.

Several major Asia-Pacific institutional investors have recently announced plans to increase their allocations to real estate. These cash-rich investors have a combined war chest of nearly US$15 trillion as at end-2014, a quarter of the total global AUM.

Chinese institutional investors are expected to account for the largest source of capital, followed by the Japanese and the South Koreans in the years to 2020.

Direct investment in commercial assets by Asia-Pacific institutional investors crossed US$19 billion last year, up from US$12 billion in 2012. Some US$9.6 billion of capital was invested in the first half of this year.

Besides direct acquisitions, there is also growing interests in investing via real estate funds, CBRE noted. It expects about 60 per cent of the additional US$240 billion of real estate investments by institutional investors in Asia-Pacific to go directly into real estate and the remainder into indirect channels such as commingled funds, separate accounts, real estate securities, funds of funds and club deals.

Categorising institutional investors into "early adopters" and "new entrants", CBRE observed that the new entrants - the Chinese, Taiwanese and South Korean insurance firms - exhibit a strong preference for gateway cities due to their reluctance to take on significant risk.

On the other hand, the early adopters - comprising the SWFs and public pension funds - are seen as having a higher risk appetite, with a focus on delivering higher returns over the long term. They have moved beyond gateway cities and into destinations such as continental Europe and non-gateway cities in the US to capitalise on price dislocation between gateway and non-gateway cities. Last year, only 54 per cent of real estate investments by early adopters were in gateway cities.

In terms of asset preference, new entrants have leant towards the office sector, with over 90 per cent of their transactions last year involving offices. Around half the deals in the same year by early adopters were in retail, industrial and mixed-use sectors. Strong competition for assets in major cities has also prompted many early adopters to look at alternative asset classes such as senior living facilities and student housing.

Early this year, GIC teamed up with Global Logistic Properties to buy Blackstone Group's IndCor Properties Inc, one of the largest logistics platforms in the US, for US$8.1 billion. China Investment Corporation (CIC) acquired Investa Property Group's portfolio of nine office buildings in Australia from Morgan Stanley for A$2.45 billion (S$2.48 billion) in July.

New entrants have also made some headline-grabbing purchases. In May, Taiwanese insurer Cathay Life purchased Walbrook Building in London's City district for £575 million (S$1.24 billion). In October, Chinese Anbang Insurance Group acquired Waldorf Astoria Hotel in New York for US$1.95 billion, the largest hotel purchase ever by an Asian investor in the US.

Mr Giuffrida noted that the new wave of investors have quickly learnt from their established peers and are becoming more dynamic in their approach and increasing their presence through opening new offices, joint ventures, or partnerships.

The CBRE report also flagged how intense competition has contributed to upward pressure on prices and a shortage of assets for sale in gateway cities. Investors also face various regulatory hurdles and may be constraint by internal capability and expertise in overseas assets.