Australia, Japan and China retain status as top cross-border APAC destinations, whereas interest in Vietnam is rising, says CBRE’s latest report.
According to CBRE, Australia was the top choice for the second consecutive year as investors continue to be lured by its attractive risk/return profile and substantial liquidity. Interest in Japan faded amid worries that fundamentals might be peaking along with weaker economic growth.
In China, investors’ interest is driven by strong economic fundamentals and the opportunity to purchase undervalued assets, however, current market conditions pose a challenge when seeking a positive yield spread.
Elsewhere, interest in Vietnam rose significantly on the back of the country’s strong macro fundamentals and higher initial yields. However, investible stock remains limited, and the typical method of entry relies on forming joint-ventures with domestic developers.
Investor preferences by asset class generally registered minor changes from last year’s survey. Noteworthy shifts include stronger interest in the office sector and weaker demand for hotels. Stronger demand for offices reflects the sector’s solid liquidity and easier management compared to other sectors. Weaker interest in hotels is largely due to the generally unfavorable supply fundamentals and pricier valuation in key markets such as Japan and Australia.
“Alternative sectors received continued strong interest from investors,” commented Tom Moffat, Executive Director, Capital Markets, CBRE Asia. “The biggest increase in interest was in specialty asset classes such as retirement living, senior housing and healthcare, supported by the increase in the region’s elderly population and higher health insurance coverage. Demand for data centers is also growing, particularly in Australia, Japan, Hong Kong and Singapore, whilst student housing in Australia has attracted strong demand from institutional investors amid the rapid increase in international students. Outside of Japan, multifamily assets haven’t been an established institutional sector in Asia, but we are seeing more investors exploring this strategy, including looking at development deals.”
Strong Interest in Outbound Investment Remains
Asia Pacific investors retain a strong interest in outbound investment with most respondents intending to invest around the same amount year-on-year. South Korean investors displayed the strongest intentions to invest abroad, spurred by political uncertainty and weaker economic growth at home, followed by Singapore and Hong Kong. Chinese investors also showed a stronger desire to invest overseas but their volume of investment could moderate following the imposition of stricter capital controls at the end of 2016.
While Asia Pacific investors identified North America as their preferred destination for the second straight year, the survey noted a pivot to developed and emerging Asian markets.
“While outbound interest remains strong, policy uncertainty in the US and Europe will prompt some Asia Pacific-based investors to focus on investing in their own region. This is consistent with the increase in cross-border investment within Asia recorded in 2016. While Australia and Japan continue to be the most sought after locations, emerging Asian markets and in particular Vietnam, registered increasing interest from South Korean, Japanese and Chinese investors,” said Mr Moffat.