Asian investments into the European property market slowed slightly in the first half of the year, which may be due to a change in the market strategy of Asian investors, according to a report by global real estate consultancy firm Colliers International.
The report said capital from Asia Pacific comprised only 5 percent of the total European transactions from the second half of 2014 to the first half of 2015, with the market dominated by European-domiciled capital which accounted for 52 percent. This was followed by America with 20 percent while cross-border European transactions made up 18 percent and other global countries outside of Asia accounted for 5 percent.
Colliers, however, noted that “for large lot sizes and portfolios, North American and Asian capital still dominates, with North American capital particularly active.”
Asian-domiciled investors have become a growing force in European real estate investment demand since the end of the last investment cycle, with an estimated acquisition of 50 billion euros ($56 billion) worth of properties from 2007 to mid-2015.
Colliers said this equates to only 3.35 percent of all capital inflows over the period, so the recently registered 5 percent does not show a moderate increase in activity.
“If activity carries on in the same vein as H1, this should translate to an improvement on 2014 activity. Yet there are signs that funds are postponing decisions while some are divesting,” the report said.
It also said that recently, some Chinese capital have pulled out of existing transactions in Central London, which is giving the impression that Asian investors are withdrawing from the market.
“While recent deal postponements look likely to be a short-term trend, there is evidence that more established Asian investors are switching strategies, seeking to crystallize solid returns in core markets underpinned by strong pricing levels,” said Colliers.
The report noted that a change in trends of different generations of Asian institutional capital have shown how Asian investors’ strategies have evolved overtime.
One of the trends that the report cited was that of the office investment sector, which clearly started in London but then paved its way to investments in other key European destinations.
Another trend can be seen in the hotel sector, with many buying to put their own brands in, such as deals like the Langham Hotel, London.
Colliers noted that aside from China, there are many other sources of Asian capital flowing into European property.
It cited a recent analysis by CapGemini and RBC Wealth management that found that there are now more high net worth individuals (defined as having investable assets in excess of $1 million) in Asia Pacific than in North America with a total population of 4.69 million, while North America only has 4.68 million.
“So while Asian domiciled capital has accounted for less than 5 percent of European transactions in the past, there is no sign of the Asian wave diminishing as the global search for income and security serve to drive the market on,” said Colliers.
It added: “If there is any short-term withdrawal, this would have a minimal impact on a market buoyed by a diversity of North American and, increasingly, European capital.”