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Asian investors diversify global real estate strategies

22nd March 2015

Asian investors deployed a total of US$40 billion into international commercial real estate in 2014, a rise of 23% year on year (2013: US$32.5 billion), according to the latest research from global real estate advisor CBRE.

As Asian investors increase their exposure to global real estate, they are diversifying their geographic and sector footprint. 2013 saw transactions centered on global gateway cities, predominantly in the office sector.

In 2014, while London remained the preferred destination and offices the asset class of choice, a greater range of asset types and cities were invested in.  Throughout the year investors looked to the next tier of cities, including locations such as Paris, Los Angeles, San Francisco and Washington. This is also demonstrated by the news that the first direct investment by an Asian institution in Dutch real estate has completed with Singaporean institution First Sponsor Group, acquiring Zuiderhof 1.

Top Five Destinations for Asian Outbound Capital – 2013 vs 2014

2015-03-24 02_10_51-Asian investors expand portfolio [Read-Only] - Word

In addition, EMEA remains by some way the biggest centre for Asian outbound investment, attracting US$13.7 billion (34%) of capital from the region in 2014. Overall, EMEA accounted for 50% more Asian investment than the Americas (US$8.9 billion in 2014).

Commenting on the Middle East’s proposition as an investment destination for Asian buyers, Nick Maclean, Managing Director, CBRE Middle East, stated, “We have witnessed a significant increase in enquiry levels from Asian investors, particularly focused on Dubai income producing assets, driven by an expectation of further growth in rental and capital values. An extraordinary mismatch between demand and the availability of suitable Grade A assets in the region, however, leaves much unsatisfied demand for local and international investors alike.”

At a country level, there were some notable trends in 2014, Asian investment in Germany increased markedly from US$984 million (€746 million) in 2013 to US$2.373 billion (€1.843 billion) in 2014. Spain and Italy also saw substantial investments from Asian buyers. In Spain US$522 million was spent versus nothing in 2013 and Italy saw US$451 million after just US$4 million in the prior year.

At a sector level globally, hotels were the biggest beneficiary of Asian investors looking beyond office markets, capturing 16% of total international spend vs 11% in 2013. In Europe, they invested ten times more capital year over year in the sector – US$1.370 billion (€1.04 billion) in 2014 versus US$137 million (€102 million) in 2013.

Across the board investor activity grew, with Singapore becoming the largest source of Asian capital, followed by China and Hong Kong. Taiwanese and Chinese insurers in particular grew their international real estate investment activities, by 770% and 310% respectively in the year.

Jonathan Hull, Head of EMEA Capital Markets, CBRE, commented:

“Asian investors are hugely attracted to the European market and particularly its gateway cities. The trends we saw in 2014 represent an expected progression in their investment strategies – which has seen an expansion of their footprint into new cities and sectors as they become more confident in the market. We expect this trend to continue in Europe this year, as we have already seen in Holland with First Sponsor Group’s recent acquisition of the Zuiderhof 1 office building.”

Marc Giuffrida, Executive Director, Global Capital Markets, Asia, added:

“Last year was an important year for cross-border real estate investing—we saw the deployment of capital accelerate as a convergence of structural and cyclical factors encouraged pockets of new capital to enter the market. This is a key trend we expect will continue into 2015. The second half of 2014 saw Chinese and Taiwanese insurers begin to feature prominently in global real estate markets.

“Alongside the emergence of new capital, the early adopters of global investing are starting to evolve their strategies beyond the traditional gateway cities. While the acquisition of trophy assets continued to attract headlines, and New York and London remain the top destinations for investment, perhaps the biggest untold story for 2014 has been the movement into secondary gateway cities such as Paris and LA as well as regional centers of the UK. This trend can be best seen in the falling concentration of the top five global destinations among the total pool of Asian cross-border investment.

“Likewise, there is a shift in the types of assets Asian investors are seeking. While office continues to be the preferred asset class, particularly for new investors, there was a significant uptick in activity in hotels and industrial assets. Investors feel that by looking to new markets and asset classes they will be able to secure better yields and face less competition from other investors.”