Risk Appetite for Prime Core Assets Rises; South Korea Most Active Outbound Investor
Key findings of the survey include:
- Overall intention to invest remains strong but moderated from last year
- Risk appetite for prime core assets has risen
- Major markets, China, Japan and Australia, remain the top investment destinations with other mature markets moving up the rankings
- Outbound investment intention stays strong
Investment Interest Remains High but Moderates from Last Year
Findings reveal that investor sentiment will remain positive in 2015 with the majority of investors (54%) planning to make more real estate purchases this year. This result suggests that investors retain a strong belief in long-term economic growth in the region and will continue to invest capital in Asia Pacific.
The intention to invest moderated from last year—in CBRE’s 2014 survey, 64% indicated the desire to make more real estate purchases—as investors continue to be concerned on high pricing; availability of investible stock and uncertainty over the economic outlook. In particular, respondents identified high level of asset pricing as the biggest obstacle to acquisitions (31%) and the greatest threat to the region (21%) for the second consecutive year. This concern is not without reason as the pace of price appreciation has slowed to 6% in 2014, compared to an average of 9% recorded over the past four years according to CBRE’s All-sector Capital Value Index.
“Our view is that investment liquidity will remain abundant in the regional real estate market but that deal flow will be limited by investment opportunities and pricing. We thus expect only a mild increase in investment turnover in 2015, by around 3-5% year-on-year,” said Ada Choi, Senior Director, CBRE Research Asia.
Strong Demand for Prime Core Assets
The slightly reduced investment confidence also comes alongside lower risk tolerance. Survey respondents demonstrated a significantly stronger appetite for prime core assets with 43% preferring this asset type compared to 29% in 2014.
“The strong interest in prime core assets is being supported by factors such as the desire for wealth preservation and reduced expectations of sudden interest rate hikes. Led by institutional investors and REITs looking for stable income portfolios with longer holding periods, investors seeking prime core assets see Asia Pacific as a key component of the diversification of their global portfolio and are increasing their allocations to the region. We’re also expecting to see further yield compression in core prime assets as a result of the level of investor preference for this type of asset,” said Richard Kirke, Managing Director, Capital Markets, CBRE Asia Pacific.
Recent rate cuts in major economies such as Australia, China, India and South Korea, as well as the quantitative easing program in Japan, will ensure the low interest rate environment continues in 2015. The percentage of respondents in the Asia Pacific Investor Intentions Survey seeing this as a threat fell from 17% in 2014 to 9% this year. The US Federal Reserve is also expected to keep interest rates at current low levels for a considerable period of time. As a result, investors will continue to have ample opportunities to secure low-cost financing in 2015, which in turn will help support investment volumes and prices.
China, Japan and Australia Remain Top Investment Destinations
Major markets, China, Japan and Australia, remain the top investment destinations in the region, with other mature markets such as Hong Kong, Singapore, New Zealand and South Korea moving up the ranking. This result aligns with the findings of the lower risk appetite among investors. Emerging markets such as India and Indonesia saw weaker interest as investors remain concerned over the pace of political and economic reform as well as the oversupply situation.
Most attractive country/region in Asia Pacific (cross-border only)
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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 (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
