Real estate allocations remain low among Asian institutional investors – just 1.7%, compared with 6%-8% for their western peers. However, many are increasing their property exposure, in response to the low global interest rate environment and weak domestic equity market performance.
While limited overseas experience has previously discouraged Asian investors from buying foreign real estate assets, a lack of investable domestic stock has prompted some to look further afield. Indeed, overseas acquisitions by Asian investors grew from $2bn to $9bn between 2008 and 2012.
CBRE predicts that Asian institutional investors will bolster their overall real estate allocations to 2.5%-3.5% over the next five years – a shift that would translate into investment of more than $150bn. Properties in well-connected western cities are likely to prove particularly attractive.
Focus on ‘gateway’ property
“Asian institutional investors are already beginning to acquire assets overseas, with core assets in gateway cities being the most sought after asset class,” wrote Chris Ludeman, the president of global capital markets at CBRE. “Given the numerous challenges they face domestically, most groups are likely to target other major markets, particularly in Europe and North America.”
New groups of Asian real estate players will emerge in the next few years, Ludeman added. These will likely include Japanese institutions, as well as Taiwanese and Chinese insurance companies.
Meanwhile European institutional investors remain upbeat on the prospects for global real estate. According to the Expert Investor Europe Manager Sentiment Survey, fund managers have been consistently bullish on the one-year outlook for global property securities since April 2012.
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