77 per cent of the investors intend to stay put on their risk curve despite a willingness to buy.
International property consultant, Colliers International’s Global Investor Sentiment Survey 2011 revealed that property investors in Asia are more risk averse compared to their counterparts in other regions.
A significant 77 per cent of the respondents in Asia expressed their intentions to stay put on their risk curve. This is compared to 65 per cent in Australia and New Zealand, 57 per cent in Europe, 50 per cent in the Middle East, 40 per cent in Latin America and the United States, and 36 per cent in Canada.
Conducted from 1 August 2011 to 14 August 2011, the Colliers International Global Investor Sentiment Survey 2011 aims to provide insights into the risk appetite, optimism and key concerns of property investors worldwide, as well as the overall property investment market outlook. 360 major institutional and private investors around the world participated in the survey.
The survey discloses that real estate investors worldwide are exuding renewed confidence in the global market. In 1H 2011, about 9,250 investment properties worth US$350 billion changed hands, an increase of 30 per cent in volume over the same period in 2010.
Mr Piers Brunner (潘秉兆), Chief Executive Officer of Colliers International | Asia, says, “71 per cent of the investors around the world indicated that they are likely to expand their real estate portfolios in the next six months, up from 60 per cent recorded in 2010. However, most of them are only interested in their respective regions, when looking to expand.
Investors in Canada and Asia showed the most interest in acquiring properties from overseas, while those in Australia and New Zealand were most hesitant to invest outside of their markets.”
Investment Sentiments in Asia
In Asia, 65 per cent of the investors remained keen to expand their portfolios as part of their investment strategies in the next six months.
Mr Brunner comments, “Office, residential and industrial/logistics properties are popular acquisition targets by investors in Asia. In particular, industrial/logistics assets in Singapore are being targeted by both institutional investors and property companies. Other property types that are being favoured by investors in Asia include office assets in Beijing and Shanghai, and residential properties in India.”
Nonetheless, despite their willingness to buy, only 23 per cent of the investors in Asia are willing to take on more risks to achieve superior returns. The other 77 per cent of the respondents indicated their preference to stay put on their risk curve.
Mr Dennis Yeo (杨焕杰), Managing Director of Colliers International Singapore and Investment Services | Asia, says, “35 per cent of the respondents in Asia cited the global economic uncertainty as their key concern, while 31 per cent of the respondents highlighted a lack of supply of suitable ‘For Sale’ properties that could commensurate with the required target return.”
Mr Yeo adds, “It is noteworthy that more than 75 per cent of the investors in Asia indicated that they typically aim for a 15-per-cent internal rate of returns (IRR) or higher for investments. This is an indication that investors in Asia are still cautious and are looking to invest only in properties which are able to generate returns that are high enough to offset any possible negativity.”
The tightening of credit and an increase in cost of debt for investors in Asia also partly explains the lower level of risk that investors are willing to take.
69 per cent of the investors in Asia felt a tightening of credit compared to six months ago and an even higher 77 per cent experienced an increase in the cost of debt during the period. 54 per cent of the respondents also indicated that the maximum loan-to-value ratio has decreased over the past six months.
Emerging trends in Asia
Older commercial properties are increasingly being challenged by competitive new developments equipped with modern functional features. Hence, according to the survey findings, 65 per cent of the investors in Asia indicated that the ownership of older commercial properties poses a larger concern today than 10 years ago.
Mr Yeo says, “The requirements of commercial space users have changed to keep up with times and their business needs, rendering older developments functionally obsolete. Location of the property is no longer the determining factor, if the asset’s features are not up to par. This finding is also consistent across the globe.
In Singapore, commercial building owners are also increasingly undertaking property enhancement and re-development works to their older buildings. For instance, in recent years, we saw One Raffles Place, Six Battery Road and Straits Trading Building undergo refurbishment/re-development works to accommodate to the changing needs of businesses.”
Meanwhile, 77 per cent of the respondents in Asia anticipated a surge in demand for sub-urban office property over the next 10 years – especially when some of the older buildings in the urban downtown locations become obsolete.
In general, investors in Asia believed that the current occupational real estate cycle1 in Asia is at 8:15, which implied that demand is on the rise and the market is close to seeing a full upswing.
Looking ahead, they are generally optimistic and are anticipating the cycle to forge ahead to 10:30 in the next 12 months. However, there are 28 per cent of the respondents who expected the cycle to pass its peak and consolidate during the forecast period.
Mr Brunner concludes, “Despite the present key issues – such as the uncertain global economic growth, geo-political upheaval, the growing inflationary pressures, the sovereign debt issues in Europe and the United States, and changes in local government policies – that would affect investors’ confidence, investors in Asia believed that real estate will continue to be a good hedge against inflation. 56 per cent of them expected that real estate rents will exceed the rate of inflation over the next three years.”
Highlights of investors’ sentiments in other regions:
- 64 per cent of investors in Canada and 60 per cent of investors in the United States indicated they are more aggressive in their expansion plans than six months ago – a stronger shift in risk tolerance than any other region.
- Political risk is seen as a key barrier to expansion in the Middle East and Africa, while the ability to raise new equity is the key concern in Australia.
- Office assets in London, Paris and Hamburg were the main acquisition targets for investors in Europe. Retail properties in Germany were also highlighted.
- Investors in Latin America seemed to be the most pessimistic, believing that they are already at the peak of the market. However, they also indicated that there is insufficient supply of properties for sale, suggesting that investors are still interested in buying.
A comprehensive 40-page report of the survey is available at www.colliers.com/globalinvestment.
1.The occupational real estate cycle has been illustrated to specific timings on the clock – with 12:00 representing the peak of the market and 6:00 representing the bottom. Each six-hour period in between 6:00 and 12:00 designates rising (from 6:00 to 12:00) or declining (from 12:00 to 6:00) cycles.