Asian institutions may invest $150b in real estate: CBRE

Asian institutional investors may seek to invest over $150 bn (€113 bn) in global real estate over the next five years, looking at opportunities in London, New York, Sydney and other gateway cities in the process, according to CBRE.

Lack of overseas investment experience, regulatory restrictions, limited investable stock and aggressive pricing have posed significant challenges for investors seeking to expand their portfolios within the Asian Pacific region.

'This has prompted Asian institutional investors to seek opportunities overseas, with core assets in gateway cities the most sought-after asset class,' commented Marie Hunt, head of research at CBRE Ireland. 'Although the Irish market is very small, there is significant deleveraging to take place and some of these Asian investors could well see opportunities to invest either directly or indirectly in the Irish market.'

Acquisitions by Asian investors outside the region surged from $2 bn in 2008 to almost $9 bn in 2012, with Europe being the major focus.

'Cash-rich Asian institutional investors currently control a fifth of global institutional capital; however, the current low global interest rate environment and weak stock market performance mean they face significant challenges in maintaining adequate returns on their investments,' said Hunt.

Many of these investors have begun to recognise the benefits of adding real estate assets to their portfolios, but despite a sharp increase in investment activity in recent years, presently allocate just 1.7% of their assets to real estate, compared to 6%-8% among institutional investors in North America and Europe, she added.

A conservative estimate of increasing their allocation to real estate to 2.5-3.5% in the next five years - allowing for a steady increase of asset size at 4-6% per annum - would translate into a potential inflow of over $150 bn into the global real estate investment market, according to CBRE.

Japanese institutions, which to date have largely been absent from the global scene, as well as Taiwanese and Chinese insurance companies, will be the first groups to emerge. The past year has seen several markets make progress towards liberalising outbound investment in the insurance sector.

In October 2012 the Chinese Insurance Regulatory Commission (CIRC) relaxed its restrictions on overseas investment by domestic insurance companies. Chinese insurers are now permitted to invest in completed commercial properties in the gateway cities of 45 designated countries.

In Taiwan, discussions about permitting domestic insurance companies to invest in offshore real estate are ongoing.