Private equity managers in Asia’s real estate market are driving fundraising and transaction activity, despite some of the largest global firms launching Asia-focused funds.
In the period 2006-2008, international firms were a significant component of the Asia-focused real estate fundraising market, securing between 33 per cent and 48 per cent of the aggregate annual capital raised, according to London-based Preqin.
However, as managers headquartered in Asia developed better track records, investors allocated increasing proportions of capital to these domestic firms. Such managers accounted for 90 per cent of capital raised by funds closed in 2015, and 92 per cent in 2016 so far.
Asia-based fund managers also account for the bulk of private real estate deal activity in the region. 17 of the top 20 deals to be concluded since 2015, including the three biggest, involved domestic fund managers.
The assets involved in these deals also show a broad range of risk and return profiles. The less developed, higher yield market in India represents a quarter of transactions announced since the start of 2015, while assets in the well-developed, lower yield landscape of Singapore account for the largest proportion (38 per cent) of aggregate deal value in the same period. This includes the $2.5 billion acquisition of Asia Square Tower I, the largest deal recorded in the region since 2015.
“The Asian private equity real estate marketplace is coming to be dominated more and more by domestic fund managers, indicative of the growth of the industry in the region. A diverse market, Asia provides opportunities to invest in highly-developed, lower yield markets such as Hong Kong and Taipei, as well as higher yield regions such as Mumbai and Delhi,” said Andrew Moylan, Head of Real Estate Products, Preqin.
Blackstone Group oversaw the largest Asian real estate deal involving a foreign fund manager. The $854mn acquisition of L’Avenue, a mixed-use property located in Shanghai, is the fifth-largest deal overall recorded in the region since 2015.
There are currently 56 Asia-focused private real estate funds in market, targeting a combined $18bn. This marks a decrease in the number of funds but an increase in target capital compared to 12 months ago.
In the Asian real estate deal market, larger assets (over 500,000 square feet) account for more than three-quarters of the aggregate value, and 42 per cent of all deals. Properties less than 100,000 square feet account for 21 per cent of all transactions.
“Deal prices and valuations remain a major concern for fund managers globally, and therefore the expansion of the Asian market may attract a growing pool of international firms. Asia-based managers will hope that their greater knowledge and understanding of real estate in the region will continue to attract investor capital, and that fundraising can once again approach the levels seen before the Global Financial Crisis,” Moylan said in a statement.