Asia-Pacific Investors: The New Titans of Global Real Estate Capital

European Investors Retreat as Asia-Pacific Gains Ground

Asia-Pacific investors have recently emerged as the foremost contributors to global real estate capital raising, with European pension funds and insurance companies scaling back their investments. In 2022, Asia-Pacific investors accounted for 35% of worldwide capital raising for private real estate investments, while the proportion from European investors diminished to 30%—a significant drop from 41% in 2021.

Changing Dynamics in Global Real Estate Capital Markets

This development marks the first instance in six years that European investors have not dominated global real estate capital markets. The last shift in dominance occurred in 2016 when North American investors contributed the largest share of capital raising. These findings align with previous investment intention surveys conducted by ANREV, INREV, and NCREIF, which indicated that European investors were more likely to be over-allocated to private real estate than their global peers following declines in listed markets.

Divergent Investment Strategies

Unlike their North American and Asia-Pacific counterparts, European institutions generally intended to reduce their weightings in real estate, having surpassed their target allocations. Conversely, Asia-Pacific institutions were substantially under-allocated to real estate, with an average exposure of 6.3%, a total of two percentage points below their 8.3% target.

Central Banks’ Role in Allocations

European real estate association INREV also ascribed the recent findings to the disparate actions of central banks across regions. While central banks in the US and Europe tightened their monetary policies, those in the Asia-Pacific region maintained looser monetary conditions. This divergence in monetary policy directly influenced allocations due to the denominator effect.

A Shift in Capital Sources: Less Reliance on Pension Funds and Insurers

For the first time in the annual capital-raising survey, pension funds and insurers—critical players in the European institutional capital markets—accounted for less than half of the capital raised. Instead, sovereign wealth funds and government institutions, more prevalent in the Asia-Pacific region, represented a record 15% share.

Global Capital Raising: A Mixed Picture

Global capital raising experienced a slight decline from €254 billion in 2021 to €246 billion. However, despite this modest decrease, INREV reported that activity remained robust amidst uncertain market conditions. This resilience likely stemmed from a solid first half of 2022 before interest rates began to rise.

Regional Capital Raising Trends

Capital raised in 2022 decreased across all three regions—Europe, Asia-Pacific, and North America—but remained generally consistent with long-term annual averages. Investment vehicles with global strategies constituted the only category to witness an increase in capital raised, surging by €8 billion to €64 billion in 2022.

Future Expectations: A More Cautious Outlook

Expectations for future capital raising have become more conservative, as the latest survey indicates. Over the next two years, a smaller proportion of market participants (62%) anticipate maintaining or increasing capital-raising activity, down from 75% in 2021. The percentage of respondents expecting to reduce their capital raising activity in the coming two years has reached its highest point since 2018, at 8% for 2022.

Market Sentiment and Ongoing Uncertainty

Iryna Pylypchuk, INREV’s research and market information director, commented on the changing landscape: “Sharp market deterioration and the contrast in global real estate performance highlights 2022 as a year of two halves, with the sentiment deteriorating as we moved into 2023. While the asset class has a long-term investment horizon, it’s clear that ongoing market uncertainty is now negatively impacting the near-term capital raising outlook.”

Pylylypchuk further noted the swift changes in preferences as markets face new challenges and uncertainty lingers. She emphasized the rise of Asia-Pacific capital in the global arena as a standout development.

Emerging Investment Trends: Asia-Pacific Investors and Real Estate Opportunities

As Asia-Pacific investors continue to gain prominence in global real estate capital markets, new opportunities and trends are emerging. Several factors may drive these investors’ interest in diversifying their real estate portfolios and pursuing strategic investments.

Appetite for Global Real Estate Assets

Asia-Pacific investors, particularly those from countries with strong economic growth, increasingly seek to acquire global real estate assets. This growing appetite reflects a desire to capitalize on higher yields, portfolio diversification, and potential capital appreciation.

Focus on Gateway Cities

These investors often target well-established gateway cities, such as London, New York, and Sydney, due to their attractive fundamentals, strong demand drivers, and favorable long-term prospects. In addition, these markets typically offer more stable and predictable returns, making them appealing for long-term investments.

Cross-Border Collaboration

As Asia-Pacific investors become more active in global real estate markets, cross-border collaboration and partnerships between regional investors are rising. By pooling resources and expertise, these investors can more effectively navigate complex international markets and pursue more significant, ambitious deals.

Joint Ventures and Co-Investments

Joint ventures and co-investments have become popular strategies for Asia-Pacific investors to enter new markets and share risks with local or international partners. This collaborative approach allows for better risk management and provides access to local market knowledge and networks, improving the likelihood of successful investments.

The Future of Global Real Estate Capital Markets

The global real estate capital market dynamics shift, marked by Asia-Pacific investors’ increasing influence, signifies an evolving landscape with new opportunities and challenges. As economic conditions, monetary policies, and investor preferences change, these forces will undoubtedly shape the real estate investment landscape.

Navigating Uncertainty and Market Volatility

As market participants adapt to ongoing uncertainty and fluctuations in real estate performance, a greater emphasis will be placed on strategic planning, risk management, and due diligence. As a result, investors must remain vigilant and proactive in adjusting their investment strategies in response to market developments.

The Role of Technology and Innovation

In this evolving landscape, the role of technology and innovation in real estate investment will become increasingly important. Embracing digital transformation, leveraging data analytics, and adopting innovative investment tools will be critical for investors to identify new opportunities, streamline operations, and enhance decision-making processes.

Sustainable Investing and ESG Considerations

Another emerging trend in global real estate capital markets is the growing focus on sustainable investing and environmental, social, and governance (ESG) considerations. As investors become more aware of the potential risks and rewards associated with ESG factors, these considerations will play a more significant role in investment decisions, ultimately shaping the future of global real estate capital markets.