BRIEFING: Asian developers hit Europe in third wave of investment

A new wave of Asian investment is heading for the UK and Europe with a strong focus on development, according to Terence Tang, managing director of Colliers International in Singapore.

The rising number of Asian developers now targeting the UK and Europe marks a third wave of investment out of Asia, he added. 'The first time they come to the region, the focus is on London.'

Speaking during a PropertyEU Investment Briefing hosted by Colliers International at the recent Mipim fair in Cannes, Tang said the first wave of Asian investment came to Europe about five years ago, with financial institutions spearheading the hunt for safe returns at the low-risk end of the core spectrum. Following capital flows from Hong Kong and Singapore, more recently, investors from Malaysia, Korea and mainland China have allocated money to this side of the world.

The capital flows follow hard on the heels of moves by a successive number of Asian governments to relax regulations and allow insurance companies to invest in real estate outside their own country. The institutional groundbreakers were followed by a second wave of high net worth individuals seeking higher risks and returns.

While the Koreans like longer leases, the Chinese are used to shorter leases while high net worth investors are very focused on residential and retail, in particular value-add opportunities, Tang said. ‘The third wave of investors or developers have a different risk profile. They need higher returns, but believe this is a good time to increase their investment as the recovery is gaining ground.' In the past 12 months, Hong Kong-based hotel groups and Chinese residential developers in particular have moved into London, he added: ‘The Chinese are very familiar with doing development, that is what they do best.’

In 2012, US capital dominated cross-border investment into London, but 2013 was the year of the Asians, Richard Divall, head of cross-border investment EMEA at Colliers International, pointed out at the briefing. ‘Asian investors accounted for 52% of transactions carried out in London last year. In 2014, we will see more US money and very opportunistic players.’

Investors from Hong Kong and Singapore are very development focused, Divall concurred. 'They are interested in mixed-use schemes on fringe locations which are typically residential led. They also have very deep pockets and want big lot sizes. '

The beauty of the UK market is that it is very transparent, tax efficient and an easy market to get into and out of, noted Martin Wright, real estate partner at London-based law firm Mayer Brown. 'In 2014, we are expecting a number of Taiwanese investors although getting an asset for a 6% yield will be difficult. ' He foresees further movement into the UK regions and cities such as Edinburgh, Leeds and Manchester. 'A lot of Asian money was looking at Germany last year, but a lot of cities don’t have the liquidity, the buildings are not for sale. We’re also seeing an increase in enquires about Spain, Italy and Netherlands. Investors are in the process of looking at these markets.'

The strong initial focus on London is linked to its favourable risk-return, Tang said. But, he added, Asian investors feel at home in the UK. 'Many Asians feel a familiarity with London and commonwealth law, especially if they have studied there. That's very important for them, to feel very comfortable with the city that they invest in. It's very difficult for them to invest in Spain, they need to do a lot of due diligence first. Asians believe in connections. The Chinese for example feel more comfortable in cities with large Chinese populations. if they can’t get the connections, they won't invest in the city.' That is particularly true of family-controlled businesses, he added. 'Institutions act differently, they look more at the market fundamentals.'