Investors Plan Increased Investment/Investors Not Without Concerns, but Remain Positive
Hong Kong March 18, 2014—CBRE has unveiled the results of its Asia Pacific Investor Intentions Survey 2014, which gauges the appetite and outlook of Asia Pacific real estate investors for the rest of the year. A significant majority of investors expect to commit more capital to the Asia Pacific real estate market in 2014 compared to 2013.
Total real estate investment turnover in Asia Pacific for 2013 reached US$90.4 billion, a rise of 24% year-on-year and the highest figure recorded since CBRE began collecting data in 2005. Despite the record total reached last year, and various concerns ranging from high pricing to slower economic growth, a majority of respondents indicated that they will continue to commit more capital to the Asia Pacific real estate market, with 64% expecting their purchasing activity to be higher than in 2013.
Investors were not without concerns, however. Respondents identified economic slowdown or weakness as the biggest concern around property investing in 2014 (23%), along with the perception that property has become overpriced (21%) and the effects of US tapering and rising interest rates (17%).
“Despite some obstacles and threats, investors generally retained a positive outlook towards the Asia Pacific region’s longer term prospects. Investors are not just planning to commit more capital to the region, they are looking to commit substantially more. The attractiveness of Asia Pacific as a region persists as a result of economic growth levels that remain higher than global averages, long-term demand for quality commercial property and rapid urbanization,” said Greg Penn, Managing Director, Capital Markets Asia for CBRE.
Breakdown of Market Interest
Asia retained a lot of appeal for investors, with Emerging Asia and Developed Asia topping the list of preferred regions to invest in globally, and with 23% of investors saying they targeted each. There was also strong interest in investing in North America and Western Europe as the recovery in the West takes hold, with 20% and 16% of investors interested in these markets, respectively.
The office sector was identified as the most popular sector for investment (32%) followed by industrial and logistics (29%) and residential (21%). The strong interest in industrial and logistics assets is driven by the comparatively better yields in the sector and strong demand for modern logistic facilities across the region. However, there are ongoing challenges around sourcing investable assets and land acquisitions. The interest in residential assets is supported by the continuing wave of urbanization in the region. Meanwhile, interest in retail assets cooled somewhat from previous years in part because of the challenges of sourcing investable assets, and pricing.
Within Asia Pacific, China is the preferred destination for cross-border investors—excluding respondents selecting their own market of domicile—followed by Australia and Japan. Meanwhile, Australia industrial and logistics, Australia offices, China industrial and logistics, Japan offices and Australia retail were identified as the most attractive country-sectors for investment.
The survey also revealed a number of other interesting trends, including:
Respondents continued displaying a strong preference towards investing in gateway cities such as Sydney, Tokyo and Shanghai
Investors are polarized at both ends of the risk curve; some indicated that opportunistic/value-added is their preferred asset type; others are looking at prime/core whilst relatively fewer opted for secondary assets
Investor appetite for secondary assets is increasing, however, as buyers are deterred by the aggressive pricing for prime/core assets and look to capitalize on the pricing gap between core and secondary locations
”Given the current hard pricing for core assets, core fund returns have shrunk significantly. This is making value-added and opportunistic strategies more appealing to investors. That said, the appetite for prime or core assets remains strong from Asian institutional investors whose portfolios are seriously underweight on property,” said Ada Choi, Director, CBRE Research Asia.
Relatively fewer respondents (21%) prefer good secondary assets, and as a result the pricing gap for good secondary locations and assets is wide, and is becoming attractive.
“Investors in secondary assets may consider taking on some leasing risk in the early stages of the recovery cycle as rental growth begins to pick up in a number of key markets. Given the low yield environment and chronic shortage of core assets in Asia, investors are showing a preference for riskier investments and are looking for value-added opportunities. This trend partly explains why a larger percentage of funds recently raised were focused on opportunistic strategies,” said Ms Choi.
The CBRE Asia Pacific Investor Intentions Survey 2014 was carried out online between January-February 2014 and covered a wide range of real estate investors, in particular including fund or asset managers, but also others including private equity firms, banks, insurers, private property companies and REITs. Respondents were primarily comprised of Asia Pacific-domiciled investors, but global investors headquartered elsewhere, but with the ability to invest in Asia Pacific, were also included.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.