Outbound real estate investments from investors in the Asia Pacific may remain “solid” in the coming years, but at a slower pace, according to a report by CBRE Research.
“CBRE Research expects that Asia will continue to experience a net capital outflow in the coming years,” the property advisor noted.
A strong appetite for overseas investments transpired in the first half of 2016, with outbound investments from Asia Pacific totaling $27 billion, up from $16.4 billion the first half of 2015.
Offshore investments amounted to $62.4 billion for the whole of 2015, a 37 percent increase from $44.5 billion in 2014. The total in 2009 was comparatively meager at $4.3 billion.
CBRE Global President for Capital Markets Chris Ludeman noted that outbound investments are likely to come from Asian institutional investors, particularly insurance firms, since they still have low exposures to real estate.
“These investors will continue to increase their allocations to global real estate, to diversify portfolios and boost returns amid low or negative interest rates on government bonds and volatile equity markets,” Ludeman said.
Despite the strong demand for overseas real estate investments, Asian investors are expected to be more cautious in the short-term due to a number of factors in the gateway cities of the Western market.
These factors included the projected peak in the cycles of the London and San Francisco office markets in the next three years, and the UK’s decision to leave the European Union.
“Asian outbound investment is therefore expected to see more moderate growth than the rapid acceleration witnessed over the past couple of years,” CBRE said.
Asian investors new to the overseas markets were told to explore opportunities in the Asia Pacific market, given their familiarity with home turf and the heightened geo-political risk in the US and Europe.
The report noted the gap between outbound and inbound investments in Asia will narrow down, driven by the region’s growth prospects.
“Most institutional investors outside the region are underweight in Asia, and over the long-term this will act as incentive to continue to invest in the region as they seek greater geographic diversification,” the report said.
Several international fund managers have successfully raised capital for Asia-focused real estate funds, a key route for smaller foreign investors who want to enter Asian markets but are not capable of directly sourcing investment deals.
“With private equity real estate funds, typically deploying capital over two to three years, the high volume of capital raised in recent quarters is expected to translate to solid investment demand,” CBRE noted.