Europe remained the top destination for Asian outbound capital in H1 2019, according to the latest report from global real estate advisor, CBRE. In H1 2019, 37% of total outbound Asian investment targeted EMEA, totalling US$7.2bn. This is compared to US$10.7bn in H1 2018.
Overall, Asian outbound commercial real estate investment declined 25% y-o-y to US $19 billion in the first half of 2019. This was predominately due to the rebalancing of portfolios by Chinese investors and global economic uncertainties. However, despite a moderation in global capital market flows, international commercial real investment continued to attract diverse sources of capital with Korean and Singapore reaffirming their status as Asia’s leading source of capital. Investors from Korea and Singapore were the major buyers in Europe too, accounting for 67% and 15% of total cross-border Asian investment into Europe respectively.
Korean investors contributed the largest portion of outbound flows in the first half of 2019. Led by large pension funds, SWFs and, more recently, asset management and securities companies, Korean investors doubled their purchasing activity within two years to US $6.8 billion. While major gateway cities in Europe, particularly Paris, Amsterdam and select cities across Germany were popular amongst Korean investors, CBRE has identified a handful of capital cities in smaller European markets which are also absorbing Korean capital – these include Ireland, Poland and the Czech Republic. Low domestic yields and positive hedging environments were identified as key motivators for Korean investors’ purchasing activity.
Singaporean capital constituted the second largest source of Asian outbound capital in H1 2019, reaching US $5.7 billion in purchasing activity. Acquisition strategies focused primarily on office and logistics properties and similar to Korean buyers, selected Singaporean buyers demonstrated a growing interest in capturing profits in emerging European cities.
In an effort to diversify globally, a common trend emerging amongst Singaporean investors is the pursuit of higher yields and alternative investments including student accommodation and data centres.
Since H2 2018, mainland Chinese investors have shifted from net buyers to net sellers. In H1 2019, mainland Chinese investors have disposed of assets in key overseas markets including London, New York and Vancouver – albeit at significant profit, this, along with the solidarity of existing capital controls, is likely to perpetuate the trend of net disposing by mainland Chinese investors. Purchasing is expected to be led by sovereign wealth funds (SWFs) and by corporates acquiring assets for self-use.
Purchasing momentum by Hong Kong-based investors also declined in H1 2019 for the fourth consecutive period to US $2.6 billion, however their underlying propensity toward prime assets in Sydney, Melbourne and London remained strong. London offices in particular remain of primary interest to Hong Kong investors; solid leasing momentum, the availability of freehold assets and comparatively low taxes, coupled with the weakness in the pound are all clear incentives for investors to seek UK opportunities. Mainland Chinese developers listed in Hong Kong are also expected to sustain outbound purchasing activity in the foreseeable future, but their focus has shifted towards smaller sized stabilized assets and commercial development opportunities with their local partners.
Henry Chin, Head of Research, APAC/EMEA said, “Current deployments by Asian investors illustrate that Asian capital is not homogenous. While there are overarching factors like geopolitical uncertainties and low interest rates which will affect the region as a whole, investors from each market possess a different set of motivations and have different options in capital deployment. Europe remains at the forefront of these investment strategies; however, the shrewd nature of Asian investors means we will see a continued appetite for smaller, emerging markets as investors seek more attractive yields.”