Investors in Asia have yet to fully capitalise on opportunities in real estate, and are behind the strong demand for private equity real estate Investments, said Jeffrey Perlman, managing director and head of Asia-Pacific Real Estate at Warburg Pincus.
The private equity firm has just closed its debut Asia real estate fund at $2.8 billion. That is nearly double its initial target of $1.5 billion, and raised in the space of a year. About 60% of the fund’s limited partners are institutions in Asia.
“The fact that we continue to live in this lower-for-longer interest rate environment pushes investors towards real estate as an asset class,” Perlman told DealStreetAsia in an interview.
“A number of these areas have been some of the best-performing sectors. Logistics and data centres have performed phenomenally well, pre-pandemic, during the pandemic, and likely after the pandemic.”
There is growing interest in real estate in Asia and most investors are still under-allocated to the sector, Perhman said.
The Warburg Pincus Asia Real Estate Fund will be focused on direct investments in real assets across Asia, particularly in the ‘new economy’ sectors of logistics and data centres, and multifamily real estate.
Perlman also noted opportunities in life sciences campuses, driven by the boom in biotech developments; and the repurposing, or redevelopment of hospitality and other urban buildings.
Another sector that offers investment potential is residential rentals, particularly in China, where more than 200 million people are renters. So far, Warburg Pincus has backed Mofang, Nova, and Ziroom in mainland China, and Weave in Hong Kong.
Perlman also said that the fund will be deployed into assets in key cities in Southeast Asia, including in Singapore, Indonesia, and Vietnam. “We believe strongly in Vietnam,” he added, noting the economy’s development on the back of a shift to manufacturing in the country, the growth of the middle class, and the emerging digital economy.
Warburg Pincus, with more than $67 billion in assets under management globally, is one of the largest real estate investors in Asia, with more than $6.5 billion invested in more than 40 real estate ventures.
Its major investments included ESR, the logistics real estate group; and Singapore-headquartered Princeton Digital Group, which develops and operates data centres.
In 2015 it formed NWP Retail with PT City Retail Developments in Indonesia, to own and manage retail properties in Indonesia. In December 2019 NWP Retail acquired five shopping malls from Indonesia’s Lippo Group for Rp 1.74 trillion.
There is significant capital being allocated to real estate in Asia. According to Preqin data, there have been $17 billion raised across 37 real estate funds for Asia so far this year.
The funds deploying in the space include Prologis’ China logistics-focused vehicles, and PAG’s Real Estate Partners II, which is understood to have closed in 2019 above target at $2.25 billion. PAG Real Estate has made some $2 billion in investments in data centre assets and plans to invest $10 billion more in digital infrastructure in Asia.
Still, Warburg Pincus prides itself on being able to identify early the trends driving demand for real estate. The firm began building its portfolio in logistics and IT office parks a decade ago, and sold all of its retail and commercial assets in China by 2015, according to a statement.
“Taken in aggregate, both the direct real assets and [the AUM of] portfolio companies in real estate that we invest in, we would be the largest owner of real estate in Asia. For us, that gives us great visibility of everything that’s happening across the region,” Perlman said.
Warburg Pincus is also an active growth investor in Southeast Asia, and is currently deploying out of its $4.25 billion China-Southeast Asia II.
Its other investments in Southeast Asia include Singapore-headquartered Advance Intelligence Group, in which they co-led a $400 million Series D round with SoftBank Vision Fund 2 in September; Indonesian super app GoTo and tax management platform OnlinePajak; and Vietnamese payments app Momo, among others.