According to the latest special report from CBRE, Asia Pacific institutional investors are expected to pump an additional US$240 billion into the world property markets by 2020, which will bring their total allocation into global real estate to US$500 billion—nearly double the US$260 billion invested as ofend-2014.
Asia Pacific institutions—which include sovereign wealth funds (SWFs), pension funds and insurance companies—are cash-rich, currently sitting on a combined war chest of nearly US$15 trillion as of end-20141, representing around 25% of total global AUM. Capital has traditionally been allocated to equities and bonds, but there is an increasing need for diversification into other asset classes, including real estate. Declining bond yields post-GFC is likewise acting to push capital in search for higher returns.
Marc Giuffrida, Executive Director, CBRE Global Capital Markets, commented, “we estimate Asian institutional investors today have real estate allocations of around 2%—which is more than it was three years ago—but still considerably below their own internal targets and much less than their OECD peers which sit at 5-7%. This allocation gap, combined with real estate’s attractive risk-adjusted returns, is why we are seeing an acceleration of investment plans by institutional investors not just globally but regionally as well.”
Ada Choi, Senior Director, CBRE Research Asia Pacific, added, “five of the top ten global sovereign wealth and pension funds are from Asia Pacific, most of which have already diversified into overseas real estate. A number of Asia Pacific institutions have also announced plans to further increase their allocations to property investments, which we expect is going to set the example for other institutions and attract them to similarly invest in real estate.”
CBRE recorded US$20 billion in total direct commercial property investments by Asia Pacific institutional investors in 2014 and close to US$10 billion in H1 2015. The proportion of total investments made overseas by APAC institutions has likewise significantly risen, from just 37% in 2011 to over 80% of total purchases in 2014—but investors’ portfolios are still significantly underweight. Besides direct acquisitions, there is also growing interests in investing via real estate funds among APAC institutions.
