The best way to ensure core returns in Asia may not be through going into top-grade office assets in prime locations, according to Scott Girard, M&G Real Estate’s chief executive and chief investment officer for Asia.
As one of the early movers in Asia’s core space, the real estate investment arm of UK insurer Prudential actually has often found more stable returns in supposedly lower grade real estate, Girard said at the PERE Summit Asia 2014 in Hong Kong last week.
In the past year, interest in Asia’s core real estate market has risen markedly. M&G, on the other hand, has been investing in core real estate since 2007. Although Girard expects growing competition going forward, he suggested that one of M&G’s major challenges over the past few years was that it had been the only player in Asia core property, and having new entrants to the market now validates their model.
A differentiator for M&G, however, is how the firm defines real estate. Girard highlighted the importance of income and the sustainability of that income, and added that is not always found in the prime assets. M&G has actually found good core returns from lower-grade assets.
“It doesn’t have to be a shiny new office building in the best location,” he said. For example, M&G recently bought a supermarket in Japan that was technically lower-grade, but it had a stable long-term tenant, and the firm has been able to get core-like returns from that asset.