How are Asian investors lining up for 2020 in Europe?
“Asian investors will continue to look to diversify their European portfolios in 2020, and assets with a steady income steam will be the focus given the late cycle,” says Henry Chin, head of research, APAC/EMEA, CBRE, as he looks forward in 2020.
This comes when Asian investors are expected to provide the biggest increases in real estate investment into Europe for 2020, reveals the Emerging Trends Europe Survey 2020.
“Ever-growing savings in Asian countries, combined with a long-term outlook, are likely to keep the capital flowing from the east,” says the survey report, published jointly by PwC and the Urban Land Institute.
Asian investors in Europe in 2019
The three main country sources of Asian capital heading to Europe in 2019 were South Korea (nearly half of the total for 2019), Singapore (a quarter of investment) and Hong Kong, says CBRE.
Chin explains: “South Korean investors mainly focused on office assets, while Singapore has a more diverse sector exposure, including student housing.”
For example, Singapore Press Holdings acquired a student housing portfolio in the UK for US$579m, while Mapletree Investment bought two purpose-built student housing assets in the UK for US$117m.
Hong Kong investors, meanwhile, says Chin, remained focused on the UK given the liquidity of the market, simple taxation and the legal system. “They were not active in continental Europe in 2019,” he adds.
“Asian outbound investment into Europe totalled US$16.7bn in 2019, having dropped 13% y-o-y” – Henry Chin, CBRE
A “moderation” of Chinese investment accounted for lower overall levels of Asian investment in Europe in 2019. “Asian outbound investment into Europe totalled US$16.7bn in 2019, having dropped 13% y-o-y,” says Chin.
When compared with the 2017 peak for Asian investment into Europe, the fall was even greater, at 48%. These decreases reflect the fall in Chinese investment, which accounted for a mere 8% of the total in 2019 versus 52% in 2017, says CBRE.
Asian investors looked to Paris in 2019
Paris was a favourite for Asian investors in 2019, with the French capital receiving nearly US$4.8bn of Asian investment, of which South Korean investors accounted for over 80%.
“The Brexit uncertainty in 2019 and limited stock availability in London affected investment activities in 2019” – Chin, CBRE
London and Frankfurt were the second and third most popular destinations, according to CBRE. “The Brexit uncertainty in 2019 and limited stock availability in London affected investment activities in 2019,” says Chin.
What’s in store for 2020?
Looking at 2020, Chin expects Singapore to continue to be one of the major capital sources, while Korean capital is likely to “moderate its pace” given that “some asset management companies are challenging them to form syndicates in Korea to support their overseas acquisitions”.
Hong Kong investors will “become active once again” in London, Chin expects, as Brexit concerns ease following the pounding victory of the pro-Brexit Conservative Party in the December general election.
“Chinese capital will diverse their sector focus and not limit themselves simply to offices but also invest in logistics and senior housing” – Chin, CBRE
“Chinese capital is expected to remain quiet [for 2020]. Developers and private conglomerates who have offshore platforms will continue to look for investment opportunities, but the deal size will likely be smaller and not exceed US$250m,” says Chin.
“On the other hand, Chinese capital will diverse their sector focus and not limit themselves simply to offices but also invest in logistics and senior housing.”
An example of this was the purchase by Beijing-based Cindat Capital at the end of last year of a senior housing portfolio in the UK for US$232m. This follows Cindat acquiring a senior housing portfolio in the US in 2017.
The arrival of the Japanese institutional investors
The Japanese institutional investors are also set to start making their first forays into European real estate, in the form of indirect investment in funds, as reported in IPE last April.
This follows the appointment in 2018 by Japan’s Government Pension Investment Fund of CBRE Global Investment Partners to manage a global fund-of-funds account, with Asset Management One, part of Mizuho Financial Group, as gatekeeper.
In the end, it’s all about income, liquidity and stability, and the opportunities to diversify a portfolio in order to chase the yield. That is what Europe offers.
Top Image: Getty Images – primeimages