Asian investors, including many newcomers, are increasing their investments in European real estate despite geopolitical concerns, experts told PropertyEU’s Global Capital Flows & Investment Roundtable which took place at Mipim in Cannes.
'There is increased interest in European real estate compared to 12 months ago,’ said Martin Towns, head of capital solutions at M&G Real Estate. ‘Political events in the last year have made some people stop and think, but we’re seeing substantial new capital come in, which is a positive sign. There is potential for the political situation to have a knock-on effect on the economy, but the supply/demand fundamentals in property are actually good and investors know that.'
The European market has shown its resilience, bouncing back in the final quarter of 2016 after a volatile year that started with concerns over China and the oil price, went on to Brexit and ended with Trump. Q4 was also the biggest quarter ever for Asian capital flows into Europe. New sources of capital have been targeting the increasingly global European market. There are new investors from China and Hong Kong but also from Singapore, Malaysia, Thailand and South Korea, while Japanese institutions are preparing to dip their toes in the water. Institutional investors are flanked by sovereign wealth funds, family offices, corporates and private money.
'Europe is in a happy place, because Asian interest in the real estate market is very keen and very real and there is appetite to buy now, not at some point in the distant future,’ said Valerie Ong, senior partner at Dentons in Singapore. ‘They have so much money to invest and, as capital values are so unrealistically high in Asia, they see Europe as offering good value by comparison.'
They also have realistic expectations, she said: 'They are used to a 3% yield, so anything above that is great from their point of view. Judging from the enquiries we get, I think the volume will pick up over the next six to 12 months.'
UK still first port of call
Asian investors initially tend to put their money in familiar places like the UK and that is not going to change with Brexit, Ong said: 'They take a long-term view and do not believe the City will stop being a great financial centre. The currency play is just one factor that contributes to their undimmed enthusiasm for the UK.'
Their first choice is always trophy assets like pristine office buildings in the centre with good tenants, but Asian investors are also showing an interest in the super-prime residential market in central London, which has been moribund for 18 months, and even stretching into student housing, senior living and logistics.
'London is attracting investors who have never been there before,’ said Tom Leahy, senior director of market analysis for EMEA at Real Capital Analytics. ‘If you look at the top 10 investors in Q4 2016 it is a list of names no one recognises.'
One notable recent example is the sale of the so-called Cheesegrater, the tallest building in the City of London, to Hong Kong-listed CC Land for £1.15 bn, the second-biggest deal ever in the capital.
'The London market is now dependent on Hong Kong and the Chinese,' said Richard Divall, head of cross-border capital markets for EMEA, at Colliers International. 'It is mainly family office type of capital rather than insurance companies, as the Chinese government is worried they will make the wrong investments like the Japanese did in the late 1980s.'
