Savills investment arm aims to double its assets under management in Asia

UK-based property fund manager Savills Investment Management is looking to more than double its investment in Asia to US$5 billion over “the next few years”, focusing on Australia, Japan and China.

The investment arm of global real estate services group Savills is also applying for Chinese government approval to become a regulated entity and be granted a quota to be able to invest in China after it opened its first office in Shanghai last year.

Savills IM hopes to see its US$20 billion of assets under management grow to US$50 billion in the next few years.

“We’re very positive on Asia because of its long-term economic fundamentals as well as the fast urbanisation and population growth in different markets,” said Justin O’Connor, chief executive of Savills IM.

“In the short term we also see more and more capital being allocated and staying in Asia given the political and economic uncertainties in the US and Europe,” he said.

After setting up its Shanghai office, O’Connor said Savills now has a well-established footprint in major Asian markets. The fund manager also has branches in Tokyo, Hong Kong, Singapore and Sydney.

“Different from other asset classes, real estate is something you need to be in the places to learn the culture, get the deals, and build bank relationships,” he said.

Another important requirement is to become a regulated entity. Savills IM is already permitted to work as a fund manager in Australia, Singapore, Hong Kong and Japan, but not yet China.

It currently own stakes in one residential project in Shanghai on behalf of two Savills IM Asia Pacific mandates.

O’Connor said the firm hopes to get approval soon so it can purchase any kind of property and compete with locals rather than taking a lot of time to obtain permission before acquiring a specific project.

In China, the company sees potential in the office and logistics markets, as well as opportunities in revamping old shopping malls.

In 2015 Savills IM set up a joint venture with China Minsheng Investment Capital for acquisitions in Britain and Europe, the first of its kind between an international real estate investment manager and a private Chinese investment company.

While Savills IM has helped the ambitious Chinese investment firm secure properties in London, O’Connor said it is also tapping Mingsheng to find investment opportunities in China.

“It’s a mutual benefit,” he said.

The fund manager said local partners are especially needed if it wants to buy assets in China’s lower-tier cities.

Savills IM conducted HK$50 billion (US$6 billion) worth of property transactions in Europe and Asia last year, up from HK$35 billion in 2015, and expects to grow that amount to HK$70 billion in 2017.

The two biggest markets Savills IM has invested in Asia over the past year are Japan and Australia.

In Australia, the economy continues to do strongly and yield is high, particularly in logistics projects as well as offices in Melbourne and Sydney, O’Connor said.

In Japan, O’Connor said Savills IM can earn a very “favourable spread” between financing cost and property yield, adding that Tokyo is one of the world’s biggest office markets.

The firm is also in the process of selling a hotel in Yokohama which it bought three years ago in order to profit from ballooning demand for hotels in Japan amid a tourism boom.

“Investors can expect a decent 5 per cent return with low risks in both countries,” he said.