Biggest wealth fund ready to buy 'a lot' of Asian real estate

[OSLO] Norway's wealth fund is making final preparations for its first Asian real estate investment as it builds a portfolio of properties in the world's biggest cities.

After scouring Asia for investment opportunities, the US$870 billion fund, built from Norway's oil revenue, has narrowed its search to Singapore and Tokyo, said Karsten Kallevig, head of real estate investments at the Oslo-based fund.

"Tokyo is arguably the single biggest market in the world for real estate," he said in a March 20 interview. While the fund doesn't have an ultimate spending target, "we can invest a lot in Asia," he said.

The Government Pension Fund Global, its official name, targets markets based on growth potential and supply constraints as it seeks to invest in 10 to 15 cities globally. It has already snapped up properties in New York, Paris, London and Berlin among other cities. The fund held about US$18 billion, or 2.2 per cent of its assets, in real estate last year, and is seeking to build that share to 5 per cent.

The focus is on specific markets rather than sectors, Mr Kallevig said.

"When we say Singapore and Tokyo, we mean the better parts" of those cities, he said. "My guess is office properties will be the main component, because that's what's for sale in those parts of town. There aren't many shopping malls in the center of Tokyo or the center of Singapore."

Since Japanese Prime Minister Shinzo Abe took power in 2012, he has pledged to revive the world's third-largest economy. The nation's commercial real estate market is showing signs of a recovery and office vacancies, a measure of unoccupied space, in Tokyo fell to 5.3 per cent in February from 7 per cent a year earlier, according to brokerage Miki Shoji Co.

Singapore, smaller in size than New York, has seen a booming property market in recent years amid rising wealth and an influx of foreigners. Office rents in the central business district jumped 14 per cent last year, the biggest increase in the region, amid a limited supply, according to broker Jones Lang LaSalle Inc.

The fund got permission to expand into real estate in 2010 after previously being limited to investing in stocks and bonds. The real estate portfolio returned 10.4 per cent last year, as the total fund gained 7.6 per cent, its smallest rise since 2011. It has warned it expects diminished returns amid record low, and even negative, yields in key government bond markets combined with slow growth in developed markets.

Just as in earlier purchases in Europe and the US, the fund will find partners for the Asian expansion, Mr Kallevig said. The next trip to the area will probably be in the second quarter of this year, he said.

"If we're really successful there, then maybe we can add a third and a fourth and a fifth city at some point," he said.

BLOOMBERG