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APAC investors driving real estate investments
ANREV found that 66% of the investors polled expressed an intention to increase their allocation to commingled funds or to maintain the same allocation. The survey found that no other property investment strategy held the interest of more than 50% of investors
Simon Mallinson 3 Nov 2014
 
   

In January 2014, ANREV, the Association for investors in Non-Listed Real Estate Vehicles, released its latest investment intentions survey for Asia-Pacific. The survey undertaken at the end of 2013 questions the investors, fund managers and fund of funds managers as to their investment intention for the following year, 2014. The survey for Asia-Pacific drew 178 responses altogether, with 93 investors, 13 funds of funds and 72 fund managers, representing a 60% increase from the previous year’s survey.


ANREV found that 66% of the investors polled expressed an intention to increase their allocation to commingled funds or to maintain the same allocation. The survey found that no other property investment strategy held the interest of more than 50% of investors.


In their choices of real estate funds, investors are also moving up the risk curve. Approximately 40% of respondents expressed a preference for value added funds, as compared to 39% for core. Amélie Delaunay, director of research and professional standards at ANREV suggested that investors are probably adopting a more pragmatic approach [in 2014] to their investment plans, and adapting to the opportunities they see.


The survey also suggested that Asia-based investors could become more of a driving force in real estate investment, as 54% of Asia-Pacific investors expect to increase their allocation to real estate in the next two years. Their average allocation to real estate now stands at 6.8%, but that is expected to increase to 8.2% in that time – which could translate to another US$80 billion coming into real estate altogether.


Intention versus reality


ANREV’s survey of Asia-Pacific Investment Intention forms part of a global study conducted alongside sister organization INREV (for Europe) and PREA (for the US). The surveys are closely watched by investors and their managers but how reliable are the results?


To answer this question, I presented analysis of investment intention versus reality at ANREV’s 2014 annual conference in Hong Kong. Utilizing RCA’s unique global database of commercial real estate activity I was able to compare the intended 2014 investment strategies of the ANREV respondents to the actual activity up to the end of Q3 2014. This follows similar analysis RCA undertook for European counterpart INREV.


The nature of real estate investment means many investors do not invest and hold real estate directly themselves but place capital with investment managers, either via comingled funds or separate accounts. To this end it means RCA can only fully track the investment manager intentions rather than the underlying pension and insurance company investors. In order to analyse the survey results ANREV provided RCA with a list of the managers that participated in the survey, as well as the aggregate results of the survey. No individual manager responses were shared.


Of the 72 fund managers who responded 67% invested in Asia-Pacific during the first three quarters of 2014 with 61% also disposing of assets. In absolute figures the managers invested USD$19.1 billion and sold US$14.3 billion, a net investment of US$4.8 billion. This supports the indication from the survey that ANREV survey respondents were aiming to be net investors into Asia-Pacific during the year.

 

The survey asked a number of questions that allow easy comparison between intention and reality. The first questioned the preferred investment locations of managers. Figure 1 shows that while managers have not been able to completely fill their intended allocations, the magnitude of reality is very similar to that of intention with Australia, Greater China and Japan topping both tables. It appears that investors have difficulty in securing investments in Singapore and South Korea perhaps due to the dominance of local domestic buyers making it difficult for international investors to gain market access.

 

 
   

In terms of preferred sector (figure 2), there is a similar pattern of investors managing to secure investments into the office sector, coming close to the intended 90% while other sectors fell short. Retail assets are notoriously difficult to obtain for international investors as the best assets are priced at a premium and in short-supply. The other sector comes out more strongly in the reality analysis as managers appear to have taken on development and hotel exposure which was not foreseen in the surveyed intentions. This does, however, support Delaunay’s statement of investors adapting to the opportunities they see.

 

 
   

The ANREV survey also suggests Asia-Pacific based investors could become more of a driving force in real estate investment. Recent analysis by RCA (figure 3), also presented at the ANREV conference, supports this by showing that inter-regional investment is out-pacing the growth of global capital. Inter-regional capital is up 145% on Q3 13. Since the Western financial crisis, Asia’s home-grown inter-regional investors have matured and will provide more competition for global investors once they return to the region.

 

 
   

Capital flows have a significant impact on the pricing of real estate markets, simply put, the greater the weight of capital attempting to access a market, the higher the prices rises. Therefore investor intention surveys have an important role in helping investors understand where there might be pricing pressure. As this analysis shows, the ANREV survey is a strong indicator of capital flow and therefore an important piece of the puzzle to help investors make better informed decisions.

 

Simon Mallinson is the executive managing director, EMEA, at Real Capital Analytics

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