Allocations to non-listed real estate funds will continue to increase in Asia-Pacific
A global Investment Intentions survey, jointly carried out by industry associations ANREV, INREV and PREA, shows encouraging signs for real estate investment in 2014.
This year, there were a record 324 respondents. Globally 324 investors, fund of funds managers and fund managers participated in the survey of which 142 are institutional investors representing USD7trn of assets under management. These investors expect to invest globally more than USD47bn in real estate this year.
A total of 65 per cent of those investors already invest or intend to invest in Asia Pacific in 2014. Fofty five per cent of them expect to increase their allocations to real estate from 9.5 per cent to 10.3 per cent of their overall portfolios. Growth is being driven by strong demand from investors in the Asia Pacific region.
Over half of those surveyed (53.8 per cent) expect to increase their allocations over the next two years.
More stable economic conditions and a weak correlation with bond and equity markets mean that real estate remains a popular choice for investors looking to diversify their portfolios. This was borne out in the survey findings, with diversification benefits cited by investors and fund of funds managers as the top reason to invest in real estate.
In terms of allocation, APAC investors, are relatively underweight but definitely playing “catch up”, expecting to increase allocation by 140 basis points up to 8.2 per cent in the next two years. This bodes well for cross-border capital flows to other regions in 2014.
2014 sees increased interest in non-listed funds as a means of allocation compared to other means, especially joint ventures and club deals. Though interest in the latter remains strong, the shift of preference could reflect a pragmatic approach by investors to greater product availability of non-listed vehicles.
“It seems that the expected growth in real estate allocation in Asia Pacific will benefit mainly to the non-listed real estate funds which is great news for our industry,” says Amélie Delaunay, director of research and professional standards of ANREV.
Location and sector preferences of the three respondent groups are this year quite similar highlighting the continued interest for Japan, Australia and Greater China. The favourite country for investors is Japan which leaps from a fifth place in the 2013 ranking. Looking across the sectors in 2013, office returns to the top spot for investors and fund managers.
Respondents most commonly mentioned access to expert management and access to new markets as the primary reasons for investing in non-listed real estate funds in Asia Pacific. However, for investors, the fact that the ability to achieve target returns was viewed as a concern suggest that investors are conscious of yield compression in the region. The ability to raise capital was viewed as a major challenge for fund managers in the next twelve months, this will remain a key area to monitor closely in 2014. Regulatory issues are a more prominent challenge, confirming the extent to which regulations from overseas jurisdictions post global financial crisis feature in the day-to-day business of the industry in this region.
Lack of transparency and market information continues to be the main reason for not investing in the region along with the availability of suitable products, the latter may explain why Japan and its office sector is a key target for 2014 investment, as it is a large and liquid property market offering more choices than any other market in the region.
In terms of real estate funds’ styles and structures, investors are moving up the risk spectrum expressing greater interest in value-added funds, multi country and multi sector strategies.
The survey attracted 178 responses for Asia Pacific, an increase of more than 60 per cent on the previous year, comprising 93 investors, 13 fund of funds managers and 72 fund managers.
“It looks like the year ahead will see a lot of investment activity in the region, as the market continues to offer an increasingly mature and diverse range of real estate opportunities for diverse type of strategy. Overall, this survey has become more robust than ever, its results send a positive signal for APAC outbound capital flows, for the non-listed industry in APAC and points to strong investment themes in 2014. ANREV will continue to work with its members to improve transparency and best practices.” says Alan Dalgleish, chief executive of ANREV.
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