MIPIM ASIA: Asia lacks core real estate opportunities

Development is one of the very few ways investors can have a core strategy in Asia, heard delegates at the MIPIM Asia Forum in Hong Kong

Institutional investors from within Asia as well as overseas are increasingly moving up the risk curve and investing in non-core strategies in the region, partly led by the lack of enough core real estate opportunities.

“More than 80 percent of the funds raised for Asia in the last few years, either in terms of value or strategy, have been opportunistic, value- add or at least core-plus. Only a little over 5 percent was core,” Sanjay Verma, chief executive officer, Asia Pacific for Cushman & Wakefield told delegates at the MIPIM Asia Forum held in Hong Kong today.

The current real estate dynamics in many Asian countries have largely led to this trend. Verma pointed out how high real estate prices in Australia, for example, have forced many investors to pursue a value-add strategy. Similarly in Japan, known to be a core real estate market, private equity investors are adopting an opportunistic strategy.

For Suchad Chiaranussati, managing director of Singapore-based SC Capital Partners, only three cities in China – Shanghai, Beijing and Guangzhou – have some characteristics of a core market.

In his view, the real estate markets in Asia-Pacific do not meet the typical definition of a core market, largely because of the lease structure available here. “Typically a core market has 10-year leases. In the Asia-Pacific region, you can get leases in between three to five years. So we can talk about core-plus assets [in Asia], not core,” he said.

He also spoke of the tough competition foreign institutional investors face against the domestic capital for buying core assets in countries such as Thailand and Korea. And, in the case of emerging markets such as Cambodia and Vietnam, there is simply not enough stock of investible core real estate assets.

Jonathan Campbell, managing director of Vietnam-based asset management and real estate consulting firm, Vina Capital explained: “Think of core in two aspects: the market has to be core, in terms of transparency, liquidity and track record, which Veitnam does not have. In the last ten years, when real estate has started to pick up, there are only five buildings in the whole of Vietnam that would be approaching core standards of construction.”

One of the few ways by which a core strategy could be employed in Asia, all the panelists agreed, is development. “Development is one way you can create core product or product with core characteristics,” said Campbell. “Since it is hard to compete with local capital to buy core assets, what you can do as international capital partnering with local groups is to build core quality type of products. This way, when the market starts to further institutionalize, you will be able to exit efficiently.”