Over the past decade, real estate as an asset class has become increasingly attractive for pension funds, sovereign wealth funds and insurance companies, encouraged by the strong returns it has generated in an otherwise low-yield environment. Allocations into real estate hit a record $226 billion in 2019 before the covid-19 pandemic struck, according to the ANREV/INREV/NCREIF Capital Raising Survey 2020, $32.8 billion of which was earmarked for Asia-Pacific strategies.
Global real estate assets under management, meanwhile, have tripled since the start of the decade to a record $3.6 trillion at the end of 2019, up 14 percent over the previous year. In Asia-Pacific, total real estate AUM amounted to $608.2 billion at the end of 2019, up from $586.2 billion a year prior, according to the ANREV/INREV/NCREIF Fund Manager Survey 2020.
The growth in total AUM has largely been attributable to increased investor inflows and capital appreciation. As indicated in the ANREV/INREV/PREA Investment Intentions Survey, real estate continues to be a key investment target among institutional investors. Real estate allocations on average make up 10.4 percent of institutional investors’ portfolios and are set to increase to 11.4 percent over the next two years. Notably, institutional investors expect to increase their allocations in Asia-Pacific more than in any other region.
$32.8bn: Capital allocated to APAC real estate in 2019
$608.2bn: APAC real estate AUM at end-2019
Interest in Asia-Pacific real estate is rising and so is the importance of accountability for investment decisions, meaning the need for greater transparency to facilitate more capital flows into the region has never been greater. Opportunistic players have traditionally made up the largest share of the capital raised in Asia, whereas core strategies raised more in the Pacific areas (such as Australia); but more recently, pan-Asia core strategies have attracted a significant amount of capital from institutional investors willing to diversify their returns in Asia-Pacific and gain exposure to core assets in the region.
This year is likely to see a pause while managers assess how coronavirus affects property markets in different countries. The beginning of 2020 saw transactions decrease worldwide, while capital-raising activities were also challenged by a freeze in global travel.
However, there is reason to suggest investors will keep on investing with the same partners – after all, the majority of the capital raised in 2019 (61 percent) was invested before the end of the year, leaving the remainder still to be deployed. Despite this, managers do face new difficulties with capital deployment as they adapt their strategies to deal with the social and economic challenges brought about by covid-19.