Sydney

US$50 billion in APAC private equity real estate capital to be deployed by 2020

With an improved fundraising environment and investors lured back to real estate in Asia Pacific, CBRE estimates that approximately US$53 billion of real estate private equity capital will be deployed into this asset class by 2020.

07 Feb 2018

With an improved fundraising environment and investors lured back to real estate in Asia Pacific, CBRE estimates that approximately US$53 billion of real estate private equity capital will be deployed into this asset class by 2020. 

According to CBRE, China, Japan and Australia will be the top three destinations for the capital deployed in the region within the next three years. Bullish investor sentiment is based on CBRE’s latest review of real estate funds, The Next Wave of Capital Deployment.

Between 2014 and Q3 2017, US$42 billion of capital was raised by Asia Pacific-focused closed-end real estate funds, which translates to around US$116 billion (post-leverage) of purchasing power. Since then, 54% of capital has been deployed—Australia, Japan and China accounting for nearly 75% of this total investment (including US$21 billion in capital invested in Australia).

The remaining capital would need to be deployed by 2020, or else funds would need to apply for an extension or return the capital to investors since real estate private equity funds typically have an investment period of three to four years. Fund managers are unlikely to wait much longer for deployment meaning that 2018 is likely to see significant purchasing activity.

“Core or core-plus funds have mainly focused on Australia, where core assets have accounted for more than 75% of transactions. However, we’re anticipating heightened interest from value-add and opportunistic funds, with Sydney and Melbourne to remain the key area of focus,” said Michael Andrews, NSW State Director, Capital Markets.

Mr Andrews also noted that core or core-plus funds were expected to focus on cyclical opportunities by investing in sectors and markets experiencing rental growth

“Increasing rental income will be a key driver of value appreciation in the coming years, with asset management and enhancement set to take on a crucial role in propelling rental growth and unlocking hidden value,” said Mr Andrews. 

Investment Strategies Likely to be Implemented by 2020  

* At nearly US$39 billion, the bulk of the capital available for deployment is by opportunistic funds. The current environment requires opportunistic fund managers to adopt more creative strategies. One potential option is an Opco/Propco strategy, where private equity investors purchase a company and then use its properties to finance the acquisition. The company is separated into two entities; a property company which owns the real estate, and an operating company which runs the business and leases the properties owned by the property company. Other strategies include opportunistic funds partnering with local investors/developers to build commercial and residential development projects. Fund managers can also consider engaging in platform deals with local asset management companies to gain real estate exposure at scale. Opportunistic fund managers are also advised to explore special situations including non-performing loans (NPL). 

* Value add real estate funds will have US$10 billion available to deploy. Filling vacant space will be their main strategy and repositioning a commercial building via refurbishment or conversion—usually by converting the basement and lower floors to retail facilities serving tenants and the surrounding community—will also remain a popular strategy for value-added funds. A mezzanine debt strategy in Australia will also provide attractive returns, given banks in Australia have pulled back loans to the real estate sector, especially for development projects.  

*Core or core-plus real estate funds will have US$4 billion available to deploy in Asia Pacific within the next three years. While strategies will vary, CBRE forecasts a focus on cyclical opportunities by investing in areas experiencing rental growth, such as the office sector in Brisbane, Guangzhou and Singapore. The growth of e-commerce also continues to create demand for modern logistics facilities in markets such as Melbourne, Seoul, Sydney, Tokyo and major China cities. In addition to conventional asset classes, core fund managers will further explore opportunities in niche sectors, such as data centres, cold storage and multi-family housing. 

With property yields compressed to historical lows, and new technology transforming corporate real estate, the lines between investment strategies continue to blur and strategies are starting to overlap.

“Gaining a thorough understanding of occupier behaviour and requirements will be critical to formulating a successful investment strategy. The next wave of fund expiry story will start in 2020,” said Henry Chin, Head of Research, CBRE Asia Pacific. 

1.US$116 billion figure includes leverage by assuming the LTV ratio for core/core-plus funds (40-50%), value added funds (60%) and opportunistic funds (70%)

2.US$4 billion figure does not include open-ended funds and listed REITs

 
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About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through more than 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

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Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.

About CBRE Group, Inc.
CBRE Group, Inc. (NYSE: CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2021 revenue). The company has more than 105,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at https://www.cbre.com.