March 30, 2016
Australia, Japan, China Top APAC Destinations for Cross-border Investors, Appetite to Invest Outside Asia Pacific Strengthens
CBRE reveals the results of its Asia Pacific Investor Intentions Survey 2016, which analyzes the outlook and appetite of Asia Pacific real estate investors for the rest of the year.
Overall buying intentions among Asia Pacific real estate investors remain positive with around 80% of survey respondents indicating they plan to buy at a similar level to, or more than 2015. Despite less respondents intending to increase purchasing activity in 2016—only 42% of respondents plan to purchase more this year, compared to 54% in 2015 and 64% in 2014—the majority of investors still expect to buy more than they sell.
“Asia Pacific will continue to remain an attractive, key growth market for investors, underpinned by rapid urbanization and economic growth levels that outpace global averages,” said Ada Choi, Senior Director of Research, CBRE Asia Pacific. “As the region’s real estate market has seen an active couple of years, which saw record-breaking investment turnover and big ticket portfolio transactions, we are starting to see softening investor sentiment in 2016 with moderated buying intentions for the second consecutive year. This is most likely due to increased concerns over the regional and global economy, high asset prices and also limited availability of assets for sale.”
A greater number of respondents (58%) identified the domestic and global economy as the greatest threat to the Asia Pacific real estate market this year, compared to last year’s 29%. There is also a growing concern on asset pricing with 38% of respondents identifying this as the biggest obstacle to acquiring assets, an increase from 31% in 2015. Nevertheless, respondents selected capital value growth as their main motivation for investing in real estate. Availability of assets is seen as the second biggest obstacle, though this has reduced from 21% in 2015 to 16% in 2016.
Investors Moving Up the Risk Curve
Given the increased uncertainty regarding the economic outlook, core assets remain the most preferred asset for investors, followed by value-added assets. However, demand for core assets fell from 43% in 2015 to 33% this year, whereas there was stronger interest in value-added assets and good secondary assets.
Preferred Asset Type
“The pricing of prime core assets and investors’ desire for high returns suggests that investors intend to move up the risk curve this year,” said Richard Kirke, Managing Director, Capital Markets, CBRE Asia Pacific.
“Institutional investors, which have looser return requirements, will focus on prime core assets for long-term holds whereas demand for value-added assets continues to be led by real estate funds and REITs. Experienced institutional investors, especially major sovereign wealth funds, are increasingly moving into development projects and into emerging Asian markets for higher returns,” Mr Kirke adds.
Breakdown of Preferred Markets, Sectors
Within Asia Pacific, findings reveal that cross-border investors continue to focus on Australia, Japan and China; collectively, these three markets account for about 60% of respondents’ interest. Australia remains especially popular among Asian investors, in particular Chinese and Singaporean investors, whilst foreign investor interest in Japan is also strong, led mainly by North American investors. Even though investment interest in China declined amongst international investors-on the back of the country’s economic slowdown, stock market volatility and currency depreciation-sentiment among domestic investors remains relatively firm. Driven by improving economic fundamentals, several emerging Asian markets such as India and Vietnam also regained investors’ interest this year.
The office sector retained its position as the most preferred sector for investment (32% of respondents) for the third consecutive year. Continued business growth in Asia Pacific, especially by the service sector, supported solid investment demand for prime assets in this sector. Logistics follows as the second most attractive investment sector. However, hotels and resorts have seen a particularly significant surge in interest, jumping from just 1% in 2014 to 14% in 2016. Demand in this sector is particularly strong in Australia and Japan, where weaker currencies have supported strong growth in tourism arrivals, especially from China.
Preferred Sector for Investment
Investors seeking higher yields will continue to turn to alternative sectors in 2016—67% of respondents are actively pursuing alternative sectors this year. Real estate debt (20%) remains the most attractive asset type, followed by student housing (17%), healthcare (16%) and retirement living (16%). Self-storage and data centers also received stronger interest from investors this year compared to 2015.
Outbound Investment Growing in Interest
Asia Pacific investors are demonstrating a stronger appetite for outbound investment this year with 42% of respondents intending to invest outside the region, up from 31% in 2015. South Korean investors retained the most positive attitude towards outbound investment, followed by Singaporeans. Asian institutional investors continued to lead outbound investment among the different investor types.
“The search for higher income returns and access to a larger pool of core assets are the key reasons behind overseas real estate investments, especially among Asian investors. Consequently, Asia Pacific investors overall are broadening their interest from Asia to the rest of the world. Asia Pacific investors plan to invest more capital internationally in the coming year than last year, which is in contrast to the softer investment intentions displayed by respondents within the region itself,” said Mr Kirke.
CBRE’s Asia Pacific Investor Intentions Survey 2016 was compiled from around 350 responses and was carried out online between January-February 2016. The survey covers a wide range of real estate investors, including funds or asset managers, property companies, institutional investors, listed property companies and REITs. Around 80% of respondents are companies domiciled in Asia Pacific and 20% are domiciled outside of this region.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com or www.cbrevietnam.com