CBRE: Asia-Pacific Investment Could Double by 2020

Asia-Pacific institutional investors could pump an additional $240 billion into world property markets by 2020, which would bring their global real estate allocation to $500 billion, said CBRE, Los Angeles.  

Asia-Pacific institutions including sovereign wealth funds, pension funds, Australian superannuation funds and insurance companies are cash-rich, with a combined $15 trillion war chest, CBRE said.

“[Asia-Pacific] institutional investors possess great potential to accelerate their investment in real estate by leveraging on their strong financial position and high mobility of their large pool of capital,” said CBRE Senior Director of Asia-Pacific Research Ada Choi. “Five of the top 10 global sovereign wealth and pension funds are from the region, most of which have already diversified into overseas real estate.”

Choi said a number of Asia-Pacific institutions announced plans to further increase their allocations to property investments, “which we expect is going to set the example for other institutions.” Several major Japanese pension funds plan to begin investing in global real estate shortly, CBRE reported. 

Several new Asian investors emerged when China, Taiwan and South Korea all relaxed their outbound investment regulations, CBRE said. 

A number of other key factors will compel Asia-Pacific institutional investors to increase their investment in real estate over the medium to long term, including aging populations, lower government bond yields, a desire for long-term stable returns and supportive government policies/initiatives, CBRE said. 

“From a long-term perspective, direct real estate investment, either at an asset level or fund level, can provide returns similar to equities, but with lower volatility–it is therefore highly desirable for institutions to include real estate in their portfolios,” said CBRE Global President of Capital Markets Chris Ludeman.

Ludeman said some Asia-Pacific investors are reluctant to take on significant risk and display a strong preference for gateway cities. In the past two years, nearly 80 percent of direct real estate acquisitions by new entrants took place in major cities such as New York, London and Sydney. But early investors now look beyond gateway cities into destinations such as Phoenix and Honolulu.

Asia-Pacific institutions should also consider looking beyond gateway cities for opportunities in less saturated markets to secure higher returns, Ludeman said. “Investors may need to partner with local developers to leverage on their local knowledge and expertise,” he said.