LaSalle: investors must turn to niche RE for returns

The traditional property markets in Asia are now becoming crowded enough to push international investors up the risk curve, according to a LaSalle research report.

Asia’s mainstream property sectors are becoming overcrowded, according to one of the world’s largest private real estate investment managers, LaSalle Investment Management. As a result, the firm is predicting that international investors will seek returns from alternative real estate asset classes in the region instead.

LaSalle’s head of research in Asia, Paul Guest, said he expected equity-rich domestic investors to drive up demand for prime real estate in Asia. That factor and a lack of distressed investment opportunities are among the reasons LaSalle has listed for international investors to seek investments in non-traditional property types like student and serviced accommodation, care homes and tourism-related properties.

“The prevalence of equity-rich Asian investors with a preference for core real estate will continue to push non-Asian investors to look up the risk curve in order to expand in the region,” he said in the statement. “We expect continued growth in investment volumes and persistent upward pressure on pricing in many markets. The most aggressive competition will be for core/prime space, niche areas like luxury hotels, as well as development options like China logistics.”

“Investors are finding that building the same office building again and again doesn’t work,” he said. “With so much competition, if you’re going to outperform the benchmark at all, it has to be looking for these gaps in the market or where better income growth can be got.”

LaSalle’s findings chime with those by the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV). Almost two-thirds of investors polled in ANREV's Investment Intentions survey published last month which named achieving target returns as their biggest challenge in 2014.

However, Guest also pointed out that he has seen signs that some investors already are moving into niche strategies. For example, Australia’s $26 billion SunSuper superannuation fund recently made an investment in a campsites company as a real estate play. Macquarie Capital and GIC Private Limited also recently closed Australia’s largest student accommodation deal. Guest expected that investors will continue to make select investments in such strategies rather than retreat from the crowded Asian real estate markets altogether.

“I don’t expect a moment where investors hit the pause button [on investing] or exit from the region because it’s become too crowded,” he added.