International Property

Asian institutional funds to channel US$240 billion into world’s property market by 2020, CBRE says

CBRE says regional pension funds and other institutional investors keen on property assets for diversification

PUBLISHED : Tuesday, 15 December, 2015, 5:08pm
UPDATED : Thursday, 17 December, 2015, 10:13am

Asia Pacific institutional investors, including those from Hong Kong and mainland China, are expected to pump US$240 billion into global property by 2020, according to a survey by CBRE.

About US$260 billion has already been allocated by regional investors into the global property market.

Asia Pacific institutions, which include sovereign wealth funds, pension funds and insurance companies are sitting on a combined war chest of nearly US$15 trillion as of the start of 2015, according to CBRE.

Traditionally, pension funds and other institutional investors have channelled funds into corporate and government bonds, among other investments, although a need for greater diversification is behind the drive for global real estate, CBRE said.

“We estimate Asian institutional investors today have real estate allocations of around 2 per cent, which is more than it was three years ago, but still considerably below their own internal targets and much less than peers in The Organisation for Economic Co-operation and Development countries which sit at 5-7 per cent,” said Ada Choi, senior director, CBRE Research Asia Pacific.

“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,” she said.

Hong Kong and mainland China will be major investors.

“Five of the top 10 global sovereign wealth and pension funds are from Asia Pacific, including the Exchange Fund in Hong Kong and SAFE from China. A number of these institutions have announced plans to further increase their allocations to property investments,” Choi said.

New entrants are mostly Chinese and Taiwanese insurance companies who made their maiden overseas property acquisitions in recent years. These two groups and their respective market preferences are changing the shape of the global real estate market.

Geographically, while London continues to be the top city for Asian investors, investment interest in other European countries is on the rise.

In the latest example, Hong Kong-based property firm Peterson Group announced its second investment fund has completed its acquisition of the Holiday Inn London Kensington Forum for 345 million pounds (about HK$ 4 billion), the largest hotel deal in London this year.

The Holiday Inn London Kensington Forum is one of the largest hotel in Central London, offering 906 rooms and about 500,000 square feet of freehold real estate in a 28-storey tower.

The hotel is adjacent to Gloucester Road tube station, close proximity to shopping anchors including Harrods and Westfield and next to cultural attractions including the Natural History Museum and Royal Albert Hall.

“Asian investors are now more aware of the value of buying European properties,” said Jean-Michel Gault, deputy chief executive of Europe’s second-largest publicly traded shopping mall operator Klepirerre.

“Valuation is cheaper [compared with the US], and the market is mature and less volatile,” Gualt said.

Paul Guan, a partner in the real estate practise of global law firm Paul Hastings, said market valuations in European cities have been steady even as concerns over domestic security have come to the fore in the wake of the Paris terror attacks last month.

“Most investors are long-term players and pursue stable return,” Guan said, adding that the rental income in large European cities such as Paris and Frankfurt has been staying strong, with some investment properties yielding more than 5 per cent.