European investors eye more Asian properties

SINGAPORE: European real estate investors are likely to put a larger proportion of their funds in Asian commercial properties in coming years as they become more comfortable with a region that is leading growth, a senior executive at property services firm Savills said.

"Over the next three to five years, it's going to increase significantly," said Steffen Wolf, who joined Savills earlier this year as Asia-Pacific head of the firm's investment management business.

"The focus has changed substantially in the past 12-15 months. A lot more people are prepared to look more intently at Asia, from North Asia to Australia, including India."

Wolf, who was previously in fund management, said his main role currently is to help Savill's mainly European clients such as pension funds and family offices invest in and manage real estate assets in Asia, primarily in offices but also in malls and other retail assets.

But over the next two to three years, Savills intends to set up its own fund to invest in physical real estate, he told the Thomson Reuters Global Real Estate and Infrastructure Summit in Singapore.

Real estate services firms such as Jones Lang Lasalle (JLL) and CB Richard Ellis have been diversifying into fund management to earn recurring income to reduce their dependence on transactions which tend to be more volatile.

JLL's investment arm LaSalle Investment Management is already a big player in the industry with $43 billion asset under management globally.

Asia's emerging markets are expected to lead the global rebound in commercial real estate, as strong economic growth and rising property values attract investors.

He said European investments in Asian property will likely grow quickly from current levels as recent entrants become more familiar with the region.

"It doesn't make sense to buy one property in one market. They want to get some scale out of managing properties. They also want to de-risk themselves by owning not just one property but two or three," he said.

Wolf added Savills is recommending investing in Hong Kong and Singapore offices as rents can continue to rise in coming years, despite strong gains over the past two years, given the region's strong economic growth and demand by existing tenants to take on additional headcount.

More experienced Asian property investors with a willingness to take higher risk should look beyond the two main Asian financial centres and look at markets that offer higher returns albeit with greater risk.

"If you can get comfortable with China, then Shanghai and Beijing, for commercial properties, is something a long-term investor should not avoid," he said.

Copyright Reuters, 2011