Asia, 5 October, 2015
- Despite mounting uncertainty in the global economy as a result of the Chinese stock market collapse, a tightening of monetary policy, improved occupier conditions and a lack of investment asset alternatives could stimulate an extension to the current EMEA property investment cycle into 2016 and beyond, according to Colliers International’s Q3 EMEA Capital Flows Report for 2015
European Capital Flows…
Colliers’ Q3 2015 Capital Flows Report shows that over the past 12 months, strong inflows to European retail funds and the ability of European REITs to raise capital through bond issuance, as a result of recent restructuring, has resulted in European-domiciled capital taking a much stronger position in Europe, accounting for 52 per cent of European investment activity between H2 2014 and H1 2015.
Colliers International goes on to predict that strong inflows of capital to Europe from domestic and international investors will result in record volumes being achieved in 2015 with these high levels of investment likely to continue on into 2016. H1 2015 investment totals reached €135 billion, 37% ahead of this time last year. The second half of the year typically represents a busier trading period, so European real estate investment levels should surpass those reached at the previous 2007 peak.
No sign of the ‘Asian wave’ diminishing…
While the market may see a change in the sources of Asian capital engaging the European market, there is no sign of the ‘Asian Wave’ of capital diminishing any time soon, according to Colliers International’s report.
The report shows the Asian investment into European real estates increased notably from 2010, with the pace of acquisitions accelerating from €4.2bn in 2010 to reach a peak of €13.1bn in 2013.
Colliers’ research goes on to identify three distinct waves of Asian investment into European real estate: Long-term players such as Singapore, Hong Kong and Japanese capital; Mid-term entrants including Malaysian and Korean Pension Funds, as well as the China Sovereign Wealth Funds; and thirdly, ‘Fresh Capital’ which includes the likes of Chinese and Taiwanese insurance companies as well as more recent Thai investors and Singaporean-listed Indonesian developers.
Douglas Smith, Head of Japan Investment Services, said, “Continuing investor demand and limited
supply of quality assets are compressing cap rates in all sectors. In the past few years, a wide variety of investors, including Chinese mainland real estate companies and developers, Hong Kong listed
and private companies, sovereign wealth funds and individual investors, have shown an interest in Tokyo.”
“The investment market continues to be active with cap rates across all asset classes at near record lows, with the hotel sector particularly active, driven by the upcoming Olympics as well as the weaker yen. Trade with China and Chinese tourism is important to the Japanese economy. A significant slowdown in China would have some effect on the Japanese economy and the hospitality sector, but there has been no significant impact to date.”
The future of Asian investment…
Commenting on the recent Yuan devaluation, Terence Tang, Managing Direct of Asia Capital Markets and Investment Services, said, “Mainland real estate prices are relatively cheaper as a result of the devaluation. It provides opportunities for long-term investors to purchase investment-grade assets available for sales which were limited in the past.”
At the same time, the Chinese government has recently reversed restrictions on foreign property investors to shore up the sluggish property sector and confidence in the economy. These changes are aimed at improving foreign investors’ financial flexibility, and providing additional liquidity by reducing the cost of on-shore debt. While the impact is expected to be limited, at least short-term, it appears to have caught the eye of some investors.