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June 2016

Asian real estate investment strategies are undergoing a strategic change as investors seek more diversification and higher profits.

Whilst many Asian markets are brimming with potential, offering plentiful domestic investment and development opportunities, Asian capital is also increasingly seeking opportunities overseas.

Over the past couple of years, Asian outbound real estate investment has continued to rise with 2015 in fact marking a record year, reaching a turnover of USD 62 billion, up by 37% year-on-year, according to data from CBRE.

The Emerging Trends in Real Estate Asia Pacific 2016 report, jointly published by the Urban Land Institute (ULI) and PWC, describes 2015 as a year of “cash migration” from Asia to other parts of the world that surpasses even last year’s record levels; a trend which isn’t set to slow.

According to the ULI/PWC report, the ongoing migration of money from Asian markets into global real estate assets comes as both institutions and private investors seek more diversification and higher profits. While cash outflows from Asia are a continuation of a trend that began around two years ago, this year, the exodus is stronger than ever. “Flows are driven by the huge amount of capital accumulated by Asian sovereign wealth funds, pension funds, and insurance companies, most of which is still invested in bonds or other low-yielding investments,” the report says.

For David Green-Morgan, Global Capital Markets Research Director, JLL, this trends marks a fundamental shift in Asian investors’ strategies. “We are seeing a structural change in the way that Asian institutional capital looks at global real estate investment. A relaxation in regulations has allowed Malaysian, Korean, Taiwanese and Chinese capital to look around the world for investment opportunities,” he says.

Other drivers of outbound activity have included the cooling measures introduced in Hong Kong and Singapore which have encouraged investors to look offshore for opportunities, Green-Morgan adds.

Sources of capital

According to ULI/PWC research, the biggest contributors to this outflow continue to be the Chinese, who are currently responsible for about 25 percent of all Asian commercial real estate outbound capital.

“The other big exporter of Asian capital in 2015 has been Singapore. The city-state has a traditional role as an aggregator of global funds, but recently it has also been a large exporter of funds in its own right, with local property companies, real estate investment trusts (REITs), and investment funds currently finding little appeal in their home market,” the ULI/PWC report adds.

In addition to China and Singapore, CBRE mentions Hong Kong and South Korea as major exporters of capital, all of which have recorded a remarkable increase over last year. “Japanese investors are still enthusiastic in investing abroad, but indirect investment through funds is their preferred approach to reduce their risk exposure. As a result, their true outbound investment turnover is not necessarily reflected in [our] direct capital analysis,” CBRE says.

Lastly, beyond the dominance of major capital sources, CBRE have also observed more active participation from other parts of Asia, such as Taiwan and Thailand.

Target markets

The low yield environment in Asia continues to encourage investors to capitalise in international markets that offer higher potential returns. According to CBRE Research, the Americas have overtaken EMEA to become the top region attracting the largest share of Asian outbound investment, reaching USD 22.4 billion in 2015, up 109% year-on-year thanks to the relatively strong economic growth in the U.S.

The Pacific region also saw significant increase of Asian investment, up 45% year-on-year. Over 70% of cross-border investment in the Pacific region in 2015 came from Asian investors attracted by the relative high yield, according to CBRE data.

Asian flows to Europe, meanwhile (some 80 percent of which are targeted at London), fell 6 percent during the same period, finds the ULI/PWC report. “This is partly a result of impending interest rate increases in the United States drawing in more capital, partly a reflection of the weakening economic outlook in Europe, and partly a realisation that the easy money from European distress has already been made,” the report reads.

In terms of locations, JLL’s Green-Morgan says that while each investor requirement is slightly different, “the majority of the capital remains focused on the biggest and most liquid markets globally, such as London, New York, Sydney and increasingly the biggest German cities.”

In terms of sectors, interest is a bit of a mixture, but core office still remains the most favoured sector, Green-Morgan says. CBRE Research however observes a continuing trend of diversification across asset classes. Although office sector remained the most-preferred asset class, hotel and industrial assets continued to receive increasing attentions from Asian investors.

In any case, direct investments in gateway cities continue to be the focus, although as more investors crowd into these locations and cap rates compress further, willingness to move to secondary cities and to invest with local partners is now increasing, the ULI/PWC report says.

Rise in ticket size

A notable phenomenon observed over 2015 is the substantial increase in big ticket and portfolio transactions, according to CBRE. Total turnover of big ticket transactions with size over USD 500 million stood at USD 27 billion, a 167% year-on-year increase. Meanwhile, portfolio deals contributed to 28% of the total outbound investment turnover in 2015, up from 16% in 2014.

“This is a result of changing international investment strategy among Asian investors. They have increasingly opted for purchasing portfolio assets that allow them to expand coverage in the destination markets quickly rather than focusing on eye-catching headline trophy assets,” CBRE Research says.

“These big ticket transactions were mainly acquired by cash rich investors such as Asian institutional investors, who also continue to lead the outbound investment among the different investor types. For instance, Chinese and Singaporean sovereign wealth funds have completed a number of major portfolio deals over 2015. Moreover, we also observe insurance companies from China and Taiwan expanding their overseas portfolios, after receiving the green light from their domestic regulators to allow them investing in real estate overseas. In fact, a number of which are first time overseas investments by the buyer,” CBRE says.

Lastly, property companies are another major type of investor that have expanded their international portfolios rapidly, with an outbound investment turnover of USD 16 billion, representing a 46% year-on-year increase, according to CBRE.


CBRE Research expects the strong outbound momentum to continue throughout 2016 as major Asian players are still expanding their global real estate exposures, while other players, including Asian private capital and Asian REITs, are catching up.

JLL’s Green-Morgan also believes that Asian outbound investment into global real estate is likely to further rise for the foreseeable future. “We are at the very start of this strategic change and given the amount of capital available Asian investors will be a force for many years to come,” he concludes.

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