REIW conference: Value-add best approach to Asian real estate

A value-add approach to Asian real estate investment is viewed as significantly more achievable than core, according to REIW delegates.

A survey of attendees of the Real Estate Investment World (REIW) annual event, held in Singapore this week, found that 81% preferred a value-add institutional investment strategy.

The poll was carried out during a core vs non-core discussion chaired by Baker & McKenzie partner Graeme Dickson.

A second poll found that returns of between 6% and 8% were regarded as achievable in the Asia Pacific, Australia and New Zealand.

Stating the case for investment in non-core, BlackRock Real Estate managing director Greg Lapham told delegates investing in core assets in Asia’s main markets was hard for investors to find returns, given that yields had fallen to as low as 2.75% in Japan and Hong Kong.

“There have been huge flows into real assets due to low returns in fixed income,” Lapham said. “That’s one of the reasons Japan has become so expensive.”

The fact core assets have been held on to by local developers and REITs has also played its part, REIW delegates heard, with investors finding it hard to access markets.

Co-panellist Elysia Tse, head of Asia Pacific real estate research at JP Morgan Asset Management, said investors without core assets in their portfolios were “missing out”.

“Core gives you stability,” she said. “When interest rates could rise, there’s an argument for having core in your portfolio as an anchor.”

Palmer Capital managing director Simon Tyrell said a “huge weight” of capital was chasing assets in Asia alongside a lack of opportunities.

Sectors such as self-storage, data centres and education-related real estate investment are an option, he said, for investors looking to benefit from Asia’s changing demographics.

Speaking earlier in the day, Fraser Thompson, director of AlphaBeta at McKinsey & Co, said demographic change in Asia could result in some countries becoming “more liberal” in their approach to immigration as a result of the need for skilled labour.

Thompson said there was a danger investors would underestimate the demographic risk to Asia’s real estate markets, pointing to ageing populations and consumer spending.

Erle Spratt, fund manager at M&G Real Estate, said Asia’s office markets presented “the risk of being over-priced”.

Investing in China, he said, “remains a challenge”.