As global economic headwinds and falling asset prices hit property allocations, Asian investors are avoiding Europe in favour of the US and Asia, despite challenges finding skilled staff in some sectors.
Mary Power, principal consultant for property at JANA Investment Advisors in Melbourne, Australia, said that Australian investors — notably Australian super funds — were shunning Europe.
“I think at this stage it’s still a no to Europe [from investors], given the economic backdrop. Yields in countries like the UK are so much lower. While there are different countries and different drivers, in general [Europe] doesn’t have the perceived GDP growth that Asian countries do,” she said.
Jeffrey Hobbs, head of private markets at bfinance in London, told AsianInvestor that the higher yields on offer for property in the US, combined with the poor economic outlook in Europe and a conviction that the US Fed was making better progress in bringing inflation under control than the ECB or the Bank of England, meant that Asian investors were currently favouring the US over Europe.
“Generally, investors have been more focused on the US since the start of Covid — particularly this year as concerns over inflation have grown. The sense is that inflation is more under control in the US than in Europe,” said Hobbs, whose clients include a number of Asian sovereign, pension, and insurance funds, as well as wealth managers, endowments, and charities.
The shift in Asian investor appetite away from Europe mirrors that of investors around the world. While allocations by global investors to real estate fell across the board in Q3, those to Europe have taken the largest hit and those to the US the smallest, as a proportion of the total. The $153 billion allocated to the US was down 21% in Q3 during the same period a year earlier, according to MSCI RCA, a property data provider. The $33 billion allocated to Asia was down 38%; the $51 billion to EMEA was down 44%.
LOOKING ABROAD
Wariness towards Europe comes despite growing pressure on Australian super funds to allocate abroad, as consolidation in the industry creates a growing number of large funds facing capacity constraints in domestic sectors.
“If you are a big and growing fund, you have to be open to all regions: it’s staring you in the face [and] you can’t only deploy domestically. The superannuation market has more big players and more are looking abroad,” said Power.
She pointed to an increasing number who have opened offices beyond Australia, and the challenges in some cases to hire experienced local staff. ESG was one area where, both at home and abroad, funds have faced challenges, she said.
“More people are coming to the sector, and most organisations have been able to hire in the area. But it is difficult to get good experienced people,” she said. “It’s an area people are training up in: it has evolved since it’s such an important area. In time, it will be part of everyday work all the time, and everyone is going to be up-skilled.”
HIRING SHORTAGE
Elsewhere, APAC investors are reporting a shortage of skilled property investment professionals in markets that are in demand.
One Asian investment executive at a leading European insurer, who specialises in Asian real estate but who asked not to be named, said that this year he had been unable to find enough suitably qualified new hires to staff his team’s expansion in Japan, as growing activity by international investors in the country increased the competition for talent.
“The right people with strong English, good skills in underwriting and asset management, and a strong local network have been hard to find,” he said.
So far this year, Japan’s continued low interest rates have seen property sectors offering superior yields compared to other regions.
In September, Toby Selman, who leads global real estate strategy at the New Zealand Superannuation Fund (NZ Super), told AsianInvestor that Japan’s property sector continued to appeal.
“We still find Japan attractive: there is a positive rent yield-against-debt spread, which is not the case in many countries,” he said.
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