A lack of investible stock will lead private and public institutions to alter their investment strategy, according to property consultancy CBRE’s annual Asia Pacific Real Estate Markets Outlook report for 2016.
The report said institutional investors are expected to focus more on portfolio acquisitions and platform-level deals while corporations and REITs switch from core to opportunistic and value-add investing.
Newly-launched private equity real estate funds currently in the investment phase will find it hard to source single-asset deals in Asia that meet investor’s target returns, and will take a longer time to form a suitable strategy to deploy capital, said the report. As a result, the flow of global capital into the region could slow down this year.
Real estate funds were key buyers of property in the region last year, having invested $20 billion in deals. However, CBRE’s report said the increasing gap between buyers’ and sellers’ expectations amid an uncertain economic environment explains the slow down. Developers in many countries are in the process of offloading their assets to repatriate capital – many prime Hong Kong developers for instance put their non-core assets for sale last year to rebalance their portfolio while consolidation of property companies is still ongoing in China. So while developers have no incentive to sell cheap because of lower carrying costs, a weaker rental outlook in many property markets is making it harder for investors to bid high.
Buying activity from REITs and corporations is also expected to be more restrained this year.
Volatility in stock markets globally, particularly the multiple market rout that happened in China last summer and again in January this year, negatively impacted Asian REIT’s ability to raise capital last year and resulted in increasing the dividend yields. This coupled with the US interest rate hike in December will continue to make it challenging for listed trusts to acquire yield-generating assets, said CBRE.
Corporations, on the other hand, will be less active in acquiring en-bloc office properties for self-use as they look to free up capital on their balance sheet and reduce costs