Asian investors are increasingly moving beyond their local markets to invest in real estate assets in the US and Europe.
However, as real estate allocations and the investible stock increases, the onus on western markets has led to a capital shortfall in Asian markets, Simon Treacy, managing director, global chief investment officer and head of US Equity at BlackRock, told delegates at PERE’s Global Investor Forum held in Hong Kong today. “With an eye on the year 2020, there is arguably too much capital for too few deals in Europe and the US. What we need is capital to start coming back to Asia,” he said.
Referring to CBRE’s recent white paper on Asian fund terminations, he spoke of how there is lack of enough capital to lap up real estate assets within Asia. According to the report published by CBRE in October, 50 Asian funds are due to terminate in the next two years, resulting in approximately $40 billion of real estate assets being available for sale. However, owing to insufficient capital, only $30 billion of assets will be absorbed by the market.
Sharing BlackRock’s 2020 vision, Treacy said that global real estate allocations are expected to double from $12.4 trillion to $24 trillion in the real estate debt and equity, public and private markets. Meanwhile, he added that the investable stock is also estimated to grow by $7 trillion in six years to 2020, largely driven by GDP, urbanisation and new developments.
“As allocations to real estate increase and there is growth in the investable stock, the amount of capital from Asian investors in overseas markets will also increase, leaving a material shortfall in Asia to 2020,” he noted.
The existing demographics of many Asian countries – growing urbanization and rising middle class – will also drive greater real estate development in towns and cities. According to statistics shared by Treacy, 1.5 billion people globally are expected to come to cities by 2030, creating a huge demand for real estate space.
Asia-Pacific investors currently command a 40 percent share of the total cross border capital flows. Their investments are up by 32 percent from the peak levels in 2007, higher than their western counterparts.
However, even while a bulk of this investment – about 70 percent – has remained within Asia-Pacific, he was of the view that this capital volume is not going to be enough to meet the increasing real estate stock in the region. “There needs to be more inflow into Asia from Europe and Asian investors to cover the shortfall of capital,” he said.