A second even bigger wave of Chinese investors is heading for Europe, our Events team learned this week at PropertyEU’s inaugural European Real Estate Opportunities Investment Forum in Shanghai.
And while the first wave consisted of a select number of large institutions chasing big deals, we can now expect the new arrivals to be far more numerous, broader based and with varied interests and objectives, our Chinese delegates said during the half-day seminar.
The interest of Chinese investors in European real estate has grown enormously in the last year, Naichuan Miao, CEO of Longmarch Partners, a boutique advisory firm, told the audience. His own company has grown together with this phenomenon, he added. ‘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
This second wave of investors needs a guiding hand, Naichuan said. ‘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.’
After our inaugural event in New York in June last year, PropertyEU has extended its reach to China where we aim to organise biannual investment briefings to present insights and intelligence on the European real estate market to local Chinese institutions. The events are tailored to meet the needs of both investors who are already active in Europe and investors who are considering a first move on the Continent.
Hosted by law firm Dentons at their Shanghai office, our first Asian seminar highlighted exactly how strong Chinese interest is in the European real estate sector. In recent years, increased freedom to invest abroad and a weakening of the economy at home have provided further incentives for local investors to look for opportunities outside their home country in a sector that is attractive for its stability and good returns.
The amount of Asian capital already being deployed in European real estate is quite significant. According to CBRE data, Asian investors forked out €16 bn in Europe last year and the advisor believes that figure is likely to be dwarfed by the volume of investments this year.
A permanent shift
That forecast coincides with what Fidelity International has dubbed ‘a second globalisation phase for commercial real estate’ that has started this year and which is triggering fresh increases in global real estate allocations by the world’s leading institutional investors. It is not a not a question of ‘if’, but ‘when’ and ‘how much’ more capital will flow into the asset class, according to Iryna Pylypchuk, senior European real estate analyst at Fidelity International.
Increasing allocations to real estate are set to run into trillions of dollars in due course and the shift is becoming permanent, she added. ‘We envisage some significant implications for real estate markets going forward and the influence of cross-regional capital will broaden beyond the top-20 global city markets and core sectors.’
Delegates at PropertyEU’s seminar in Shanghai learned that the second wave of Chinese investors targeting Europe is in fact prepared to stray beyond the beaten track. With a local partner investments opportunities multiply, our expert panellists 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.
Geographically adventurous
Interestingly, Chinese investors have already expressed ‘great interest’ in Central and Eastern Europe for example, and are ‘happy to allocate part of their portfolio there’, Naichuan said.
He pointed out that the second wave of Chinese investors is not only geographically adventurous and open to different types of investment, but that they are also more flexible in their return expectations and do not have benchmarks in mind when they look at Europe.
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.’
The key to success, according to Pawel Debowski, Chairman of Denton’s European Real Estate Group, is a local partner. Citing two recent transactions in Central Europe with two Korean pension funds for a value of over €200 mln, Debowski said the pair formed a joint venture with local Denton clients who have a strong team on the ground and who will be able to improve the assets in future.
His message was simple: ‘That is the only way to go.’
Judi Seebus
Editor in Chief PropertyEU
