Positive fund-raising environment to drive real-estate investment this year: CBRE

Last year the Asia-Pacific real-estate private-equity fund environment totalled US$14 billion, the highest since the global financial crisis that began in 2008, though still well below the $28-billion peak recorded in 2007. The region saw fund-raising by 42 private-equity real-estate funds, an increase from previous years driven by the demand for access to the region.

CBRE predicts that most of the raised funds will translate into direct real-estate investments in the region this year, helping to drive up the turnover of overall capital activities by 5 per cent.

The Asia-Pacific region remains a major focus for international investors, with an increasing number of new groups looking at the region for the purposes of portfolio diversification and long-term investment.

However, it remains challenging for cross-regional investors to invest directly in the region because of the lack of transparency in many markets and their lack of experience in the region. Investors are therefore channelling their capital to these newly formed funds.

Before the global financial crisis, groups from Europe and North America were active investors in the Asia-Pacific region through private-equity real-estate funds. However, many investors halted their activity after the onset of the crisis.

“In recent years, the gradual recovery of the global economy and excess liquidity in the market [have] resulted in a steady increase in real-estate investment transactions,” said Nick Crockett, executive director of CBRE Capital Advisors for Asia-Pacific. “Confidence among investors from the United States and Europe has recovered and many groups have resumed allocating capital to regions outside their home countries, including Asia-Pacific.

“We noted less interest in opportunistic funds than prior to the [global financial crisis] as investors are increasingly focused on capital appreciation, long-term value appreciation and the construction of a diversified global portfolio. Excess returns are no longer their primary motivation for investing in Asia-Pacific.”

Interest in opportunistic funds has hence significantly decreased from 93 per cent in 2013 to 57 per cent in 2014; CBRE expects this trend to carry over throughout 2015.

Pan-Asia-Pacific funds rise

While 22 newly raised funds in 2014 were single-sector and single-country funds, a notable increase from just eight in 2013, pan-Asia-Pacific funds still accounted for the majority, or 60 per cent, of the region’s total fund-raising volume, amounting to $8.2 billion. With the foreseeable long-term investor strategy of rebalancing portfolios, CBRE expects to see more pan-Asian core open-ended to opportunistic funds pushing into other mature Asia-Pacific markets in the coming years.

In the post-crisis environment there has been a stronger demand from investors for enhanced accountability from fund managers and better control over their investments.

“Battle-scarred but wiser and better informed, we are seeing investors increasingly looking for fund managers with strong and proven track records, with the demonstrated ability to source deals in an intensely competitive market in which quality assets are finite,” Crockett said. “This is a continuing development that global and regional fund managers need to fulfil going forward.

“Furthermore, considering that pan-regional fund vehicles are in primary demand, specialist knowledge of a particular market and sector is invaluable to more experienced investors looking for targeted investment opportunities in the Asia-Pacific fund market.”

CBRE is increasingly seeing investors who demand better control and transparency over their investments. Fund managers have various options for tailoring funds to clients’ needs: for separate accounts, which have seen an upswing in volume to $12 billion in 2014; or secondary fund trading, which markedly increases transparency and liquidity and presents flexible exit options before fund termination.