The weight of Asian capital targeting Europe is set to broaden in 2015, according to panelists at PropertyEU’s Outlook Investment Briefing held last week at the London office of Colliers International.
The weight of Asian capital targeting Europe is set to broaden in 2015, according to panelists at PropertyEU’s Outlook Investment Briefing held last week at the London office of Colliers International.
‘There are a lot of brand new clients who want to get involved in the market now,’ noted Martin Wright, head of European real estate at Mayer Brown International. ‘They’re coming from all over the place,’ added Alistair Dixon, chairman of Azimuth Global Partners. ‘We’re seeing players from across the field including insurance companies, sovereign wealth and plantation owners.’
In addition to a big push from Taiwanese insurers, Chinese and Korean investors, the Japanese are now also poised to re-enter the market in 2015, predicted Richard Divall, head of cross-border capital markets at Colliers International. One Japanese government fund is, he said, gearing up to allocate 5% or roughly US$65 bn to real estate. They might do it direct, he added. 'That would be a huge game changer.’
Japanese investors like Mitsui have already become more active again in Europe in the last two to three years but primarily in deals in the sub €100 mln range, he added. The same is true of Australian investors like NAB and AustralianSuper, he said. 'They have learned a lot from the 1980s and 1990s as well as 2007-08. They’re a lot more cautious now and setting up local offices or investing in real estate through the likes of TIAA Henderson and other big investment houses.’
Divall signalled a number of key reasons why a greater amount of Asia-Pacific capital is now targeting Europe. ‘China’s economy is slowing and that is having an impact. There was a huge property boom in 2012-13 and Taiwanese investors found themselves buying an office in Tapei for a 2% yield. The market has become too hot and it’s become very difficult for them to make money in their own markets. From their perspective, the UK and Europe tick a lot of boxes.’
Across Asia, national governments have also eased regulations to allow insurance companies to invest in property and in that sense the Taiwanese are merely the next wave. While most Asian investors initially target London, a number are going broader, Divall said. ‘We’re seeing some investors moving to Germany, and others trying to go to France and Spain.’
According to Wright, Asian investors will ‘undoubtedly’ take on more risk in the coming 12 months. ‘In 2013, we saw a great deal of Asian banks lending to Asian investors, to their existing clients, for example from Singapore. There’s considerable interest in investing in Europe as many don’t envisage making money in their own backyard.’
Despite increasing competition from US and German banks, many Asian players are keen to step up their presence in Europe, Wright continued. ‘Those who dipped their toes into the market in 2013 are looking good; some of the IRRs they generated were spectacular. Some want to buy in London and Paris and are asking us, please introduce us to your developers or joint venture partners.’
Wright said he saw ‘great interest’ in Europe, but added that Asian investors often don’t see what they want. ‘They want to develop, but Paris is too hard a market to get into. They’re also looking at Germany, places like Augsburg, Munich and Berlin.’
He added that he was not convinced Asian investors would move out into Europe’s regions. ‘They’re not saying to us, please find me something in Manchester and Birmingham. Other UK entities are doing that because they’ve been pushed out of London. And Asian investors are not interested in eastern Europe at all.’
Many Asia-Pacific investors have small real estate teams and are therefore teaming up with European partners who can help them to invest in certain sectors and geographies, noted Dixon of Azimuth Global Partners. ‘Many have very very small teams and are underinvested to effectively move large amounts of capital around the world.’ In addition to an investment platform, many are also keen to find an industry partner, he added. ‘Developing and owning can be very rewarding.’
So far most Asian investors have taken the direct path, but Dixon sees more investing in funds in the future. ‘I think more will invest in funds because they can’t move enough capital. The motives are all very similar. They all want a spread over their national bonds and have a large amount of capital to deploy. They can’t do it in the traditional way.’
Other potential areas that Asian money may target in the future include healthcare in the UK, Dixon said. ‘There’s enormous potential there for elderly care. For hospital and acute care, there are great opportunities. The Asian investment community also really understands serviced apartments, student accommodation and data centres. Asians also really like outlet centres.’
The wall of Asian capital is already driving sentiment, noted Philip la Pierre, head of investment management at Union Investment. ‘There is a lot of Asian capital,’ he conceded. ‘But there is also an element of hype and that is driving sentiment. Local guys like ourselves are being faced with an invisible premium.’
Ultimately, however, the key issue is not pricing, but timing, he argued. ‘It’s all about reliability and speed of decision-making. If often takes Asian investors three months to take a decision. We only need two weeks for a €1 bn investment.’
Nevertheless, change is in the air, he said. ‘The education process is moving at a great speed. By 2015 Asian capital will be a lot quicker. And if they jump a few more hurdles, the same will be true for 2016 too.’ La Pierre conceded that it was ‘annoying’ to have such competition on pricing. ‘But,’ he added, ‘we’re also a seller. And we’re not just focused on the UK and Europe.’