What does the future hold for Asia-Pacific’s real estate markets?
Over the last three years, capital flows into the region’s markets have been approximately US$16 billion a year. However, 2016 actually saw a drop in capital coming in compared to the previous two years.
While many global institutional investors remain underweight Asia-Pacific, the pace of investment is still not keeping up with their appetite, notes David Green-Morgan, Global Capital Markets Research Director with JLL. “Many of the largest and fastest-growing economies are located in the region, and this naturally attracts capital. However, many of the real estate markets, such as in China and India, remain challenging places to invest, which explains why flows of capital into the region are still relatively small compared to Europe and the US.”
To date, North American, German and Middle Eastern capital sources have been the most active investors into Asia-Pacific real estate, either directly or through fund managers, says Green-Morgan. “And given the inflows of capital they are seeing, we would expect them to try to allocate more money to the region in future years.”
Abu Dhabi Investment Authority (ADIA) is one. The huge sovereign wealth fund opened an office in Hong Kong in October to help foster its regional relationships and identify new investment opportunities in China and other key Asian markets.
The Chinese government’s efforts to strengthen the country’s logistics infrastructure networks are a good example, said ADIA’s Managing Director Sheikh Hamed Bin Zayed Al Nahyan, in a January interview with China Finance. In response, ADIA has invested in a logistics platform managed by Prologis to build warehouse facilities in strategic locations in China, which will allow goods to be efficiently transported into major cities from wherever they are produced. Going forward, Al Nahyan indicated that ADIA sees further opportunities to partner with local firms to invest in China’s retail and residential space.
Singapore’s sovereign wealth fund GIC is also making acquisitions. For example, it recently beat a number of suitors to enter into an exclusive agreement with the promoters of India’s largest real estate company, DLF Ltd, to buy a stake in DLF Cyber City Developers Ltd.
Meanwhile, in March it emerged that the Canada Pension Plan Investment Board and Ivanhoe Cambridge, the real estate arm of leading Canadian institutional fund manager Caisse de Depot et Placement du Quebec, will together invest almost US$500 million in logistics facilities in Singapore and Indonesia.
The question is, are such inflows reflective of a more sustained, long-term shift in investment patterns?
In the run up to the global financial crisis, the trend was primarily for money to move into Asia-Pacific. But since then, the story has been of the movement of capital out of Asia into the US and Europe in particular, says Green-Morgan. “Over the next few years I expect both trends to normalise. Instead, the focus on inter-regional flows will become more concentrated on flows into advanced and emerging markets.”
One of the biggest challenges for the region’s real estate markets is not one of development, but of making more of the existing stock investible, explains Green-Morgan.
While Asia has some of the world’s biggest cities, transactional volumes are not yet keeping pace with development in other areas. If the region can unlock this potential then the flow of capital from all parts of the world is likely to pour in.
Global Capital Markets Research Director, JLL