BRIEFING: Second wave of Chinese investment into Europe on its way

After the first wave consisting of a few big institutions chasing big deals, Europe can now expect the new arrivals to be far more numerous, broader based and with varied interests and objectives.

That is one of the trends that emerged from the inaugural PropertyEU European Real Estate Opportunities Investment Forum which was held in Shanghai this week. 

For the very first time, PropertyEU organised an event in China to present insights and intelligence on the market in Europe to local institutions, targeting both investors who are already active in Europe and investors who are considering a first move on the Continent.

Incentives to invest abroad
The well-attended event, hosted by law firm Dentons at their Shanghai offices, highlighted how strong Chinese interest in the European real estate sector is, as increased freedom to invest abroad and a weakening of the economy at home provide further incentives for Chinese investors to look for opportunities in Europe in a sector that is attractive for its stability and good returns.

The €16 bn of Asian capital that was deployed in Europe last year, according to CBRE data, is likely to be dwarfed by the volume of investments this year.

‘The interest of Chinese investors in European real estate has grown greatly in the last year, and my company has grown together with this phenomenon,’ said Naichuan Miao, CEO of Longmarch Partners, a boutique advisory firm. ‘I represent the second tier of Chinese investment, not the handful of institutions who have already established themselves but the many investors who are extremely interested, but not sophisticated or experienced.’

Guiding hand needed
This second wave of investors needs a guiding hand, said Naichuan: ‘The problem for less sophisticated investors is not lack of interest but lack of knowledge, information and connections in the local market in Europe. There is a very narrow channel for Chinese investors to go global, and they are very worried about the risks.'

The solution is finding a local partner who can provide that knowledge and information, as well as take care of managing the asset. With a local partner investments opportunities multiply, the experts said, as it becomes possibile to be more adventurous and go up the risk curve investing in Tier-2 markets, in development opportunities or alternative assets.

There is ‘great interest’ in Central and Eastern Europe, for example, and Chinese investors are ‘happy to allocate part of their portfolio there', said Naichuan.

In Poland as in other neighbouring countries ‘it is extremely important to have a local partner or to build your own team to do the asset management', said Pawel Debowski, Chairman of the European Real Estate Group at Dentons. ‘I have just closed two transactions with two Korean pension funds valued at over €200 mln, and they formed a joint venture with local clients of ours who have a strong team on the ground and who will be able to improve the asset in future. That is the only way to go.'

Geographically adventurous
As well as being geographically adventurous and open to different types of investment, the ‘new’ Chinese investors are also more flexible in their return expectations, delegates heard.

'Established investors like Fosun have very clear targets, they need 10% yields in Moscow, 6.5% in Warsaw and so on,’ said Naichuan. ‘But actually the majority of Chinese investors don’t have such benchmarks in mind when they look at Europe. They need help from local partners, and for them it is a process of testing the waters by feeling the stones.’

First-time investors are more open and flexible, Stephen Miles, senior director, EMEA Capital Markets, CBRE, agreed: ‘They are prepared to compromise on nominal return targets just to get a foothold in the country, become familiar with the market and start building a platform.'