ASIA PACIFIC INVESTORS MOVING UP RISK CURVE; RETAIL ASSETS TO REGAIN FAVOR WITH CHINESE INVESTORS

CBRE Publishes Asia Pacific Investor Intentions Survey 2017

Shanghai, March 21st –CBRE recently released Asia Pacific Investor Intentions Survey 2017, providing an in-depth look at the outlook and appetite of the region’s real estate investors. With global interest rate policy about to undergo major shifts, investors will turn more cautious in the coming year. More investors are seeking yield spread and showing a stronger appetite for higher risk in pursuit of better returns, according to the survey results. 

Investors motivated by yield spread; stronger focus on core-plus and opportunistic strategies
The pursuit of higher yield is pushing investors towards a core-plus strategy. The greater risk tolerance in exchange for higher potential returns is similarly reflected by the shift to opportunistic strategies, as the lack of prime assets for sale prompts more investors to take on development or redevelopment risk to build high quality assets.

SWIPe investors to play major role in large deals; logistics assets gain growing SWIPe interest 
Sovereign wealth, insurance and pension funds (SWIPe) are shifting their strategy towards more opportunistic investments. The median level of expected capital deployment in 2017 for all investors is US$500 million or below. However, the median for SWIPe is over US$1 billion. Many SWIPe respondents even indicated plans to deploy between US$2 billion - US$5 billion this year, suggesting that many of the large deals in the region this year will involve SWIPes. SWIPe investors also displayed a particularly strong interest in logistics & industrial assets in the survey, driven by structural changes to consumer purchasing habits and the lack of modern logistics facilities.

Stronger appetite for offices; burgeoning demand for healthcare and retirement living
In terms of investor preferences by asset class, demand for offices continues to grow. The biggest increase in interest was for demographically driven specialty asset classes such as retirement living/senior housing and healthcare.

In China, investors’ interest is driven by strong economic fundamentals and the opportunity to purchase undervalued assets. 61% of Chinese investors, up from 49% in 2016, intended to invest directly in pursuit of higher returns. The office sector (35%) remained the most-preferred asset class for Chinese investors. Their appetite for logistics assets (20%) also registered an increase. Investors are refocusing on retail assets (18%) as the sector shows signs of stabilization. Demographic changes and heightened health awareness are driving stronger interest in retirement living and healthcare.

 
Strong interest in outbound investment remains; a pivot to emerging Asian markets
Asia Pacific investors retain a strong interest in outbound investment. North America was identified as their most preferred destination for the second straight year. However, policy uncertainty in the US and Europe will prompt some Asia Pacific-based investors to focus on investing in their own region. Cities of Sydney(23%), Tokyo(14%)and Shanghai(9%)were regarded as top three preferred cross-border investment destinations, followed by China’s tier II / III cities (6%). Limited availability of core assets for sale in the tier I cities prompts cross-border investors to turn their gaze toward major tier II markets, with investors seeking higher returns attracted by signs of stabilization in the leasing sector and provision of rental guarantee by some landlords.   

 
 
 
Sam Xie, Head of Research, CBRE China commented,” The target to deliver economic growth of around 6.5% in 2017 pointed to stabilization and ongoing restructuring of China’s economy. As economic shocks are viewed as less of a threat, investors will hold positive intentions for continued growth in China’s real estate market supported by solid fundamentals. Rapid urbanization across the nation has also presented enormous investment opportunities in the commercial sector. The relatively loose credit environment will ensure sufficient liquidity in en bloc investment market.”

Alan Li, Managing Director of Capital Markets, CBRE Greater China commented,” Chinese capital dominated Asian outbound real estate investment in 2016 and will remain active in deploying capital offshore. Despite recent policies by the government restricting Chinese outbound investment, Chinese investors will continue to deploy capital overseas, but will turn more selective towards real estate acquisitions and opt to engage in a higher number of smaller deals. We expect the increased scrutiny would boost demand and motivate Chinese investors to purchase prime assets in the domestic market.”

CBRE’s fourth annual APAC Investor Intentions Survey was compiled from around 500 responses and was carried out online from December 8, 2016 to January 25, 2017. The survey covers a wide range of real estate investors, including funds or asset managers, private equity firms, developers, listed and private property companies, listed and unlisted REITs, and sovereign wealth funds, insurance funds and pension funds. Around 80% of respondents are companies domiciled in Asia Pacific and the other 20% are domiciled primarily in Western Europe, the Middle East and North America.