Asian investor appetite for overseas real estate shows no sign of abating as the region’s real estate investors continue to look overseas in their hunt for yield, spending over US$19.5 billion in the Americas and Europe in the first half of 2017 alone.
As the region’s sovereign wealth funds have ramped up outbound investment, so too have private buyers, insurers, and other institutional investors and, with CIC’s US$13.8 billion acquisition of Blackstone’s pan-European logistics portfolio, Logicor, still to close, 2017 looks set to be another headline-grabbing year for Asian investors.
“In the early stages of the current cycle, Asian investors preferred to make direct property investments within the region, but since 2013 this has flipped, with inter-regional purchases now making up more than half of cross-border acquisitions,” explains Pranav Sethuraman from JLL’s Global Capital markets Research team.
Despite uncertainty surrounding Brexit, London has been the biggest beneficiary of this capital, receiving nearly 25 percent of all inter-regional acquisitions by Asian investors since 2014. New York, Washington, D.C., and Paris follow closely behind but all three combined have still seen less Asian capital than London over the last three and a half years.
Hey, big spender
With a series of high-profile acquisitions of trophy assets in gateway cities, investors from China and Hong Kong in particular have been among the biggest inter-regional spenders with combined purchases of over US$11 billion at the half-year mark. Chinese travel and logistics conglomerate HNA’s acquisition of 245 Park Avenue for US$2.1 billion marks just the fourth time an office tower has sold for more than US$2 billion in New York while Hong Kong-based Lee Kum Kee’s purchase of ‘The Walkie Talkie’ in London for US$1.7 billion broke the record for the largest ever single asset deal in the city and comes on the heels of Hong Kong listed CC Land’s US$1.4 billion acquisition of ‘The Cheesegrater’ earlier in the year.
“Politics, in addition to economics, is responsible for the volume of capital coming out of Asia,” explains Sethuraman. “In the case of Hong Kong, a tense political climate coupled with record pricing levels and stiff competition from mainland Chinese companies, has seen local investors looking to real estate in the U.S. and the UK as a safe haven for their wealth and as a source of steady income.”
No city exemplifies this more than London which has received almost US$4.5billion from Hong Kong buyers in the first half of 2017, 91 percent of the country’s total inter-regional spending.
The situation in China is similarly complex with Chinese developers, insurers, and conglomerates splashing out on real estate in global gateway cities over the last five years in a bid to diversify their portfolios.
“Foreign real estate assets provide stable and safe sources of income, an invaluable benefit given the relative volatility of the Chinese market,” says Sethuraman. “The 2015 currency devaluation followed by an economic downturn prompted investors to question the stability of the renminbi and the domestic economy.”
As a consequence, foreign acquisitions picked up in 2016 with Chinese firms completing a number of landmark deals including Anbang’s takeover of Strategic Hotels and Resorts and HNA’s acquisition of a 25 percent stake in Hilton, each for US$6.5 billion. In a bid to stem capital outflows, Beijing has sought to curb large purchases of foreign assets by domestic firms, including acquisitions of real estate while regulators have also threatened to clamp down on firms who flaunt these restrictions, leading many to believe that 2017 will see a dramatic reduction in capital flows from China.
However, Sethuraman explains that while the recent regulations have helped cut back on foreign spending by local investors, Chinese firms with access to offshore capital, especially those with Hong Kong based subsidiaries, are still active in global real estate markets and will not face problems deploying capital for deals.
“Firms that enjoy strong relationships with the central government may still yet be able to move capital out of the country in spite of the regulations against it – these factors may keep capital outflows from falling off completely.”
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JLL's Global Capital Markets team