Asia proves the bigger draw

Investors in non-listed real estate vehicles will allocate more to funds in Asia than to funds in Europe, according to a comparison of the two markets carried out by INREV, the European Association for Investors in Non-Listed Real Estate Vehicles, and its sister, ANREV, the Asian Association for Investors in Non-Listed Real Estate Vehicles.

While allocations to the sector from those who invest in both regions will rise this year, growth will be at markedly different rates. More than 80% of people who invest in Asia are expected to increase their allocations to non-listed funds, while European investments will be much lower at 40%.

INREV said that the trend is “probably best explained by the fact that the Asian market is still comparatively young, with investor interest in the sector growing rapidly”. But the association concedes that the difference is driven by “the main obstacle” to European investment – difficult market conditions.

In addition, the percentage of investors expecting to shrink their allocations to European funds is much higher compared with Asia. While around 20% of investors expect to lower their allocations to European funds, no investors expect to drop their investment in Asian funds.

These figures result in a net increase of 82% to Asian funds compared with 21% for European funds. A similar trend was seen in the two surveys last year, with a higher percentage of investors expecting to boost allocations to Asia compared with Europe.

For direct investments, funds of funds and listed real estate investments, the differences between the two regions are smaller. However, for all three investment products, interest is greater in Asia, as demonstrated by the higher net allocations compared with Europe.

Listed assets more attractive in Asia

Listed real estate, in particular, is more attractive in Asia. Around 35% of respondents expect to increase allocations to Asian listed real estate compared with 15% for European listed real estate.

Investors see Asia as the most attractive region for all real estate investment products compared with Europe, given the different economic climates. In Asia, most countries, with the exception of Japan, report continued strong growth, while the economic crisis last year worsened with the euro crisis.

Investors strongly prefer core products in Europe and developed Asia at 70% and 89% respectively, continuing a three-year trend. However, in the developed Asian markets, preferences for value-added and opportunity funds increased over the previous year.

Investors considering emerging Asian markets have a clear preference for opportunity funds, at 75%. For both Asian and European investors, German retail is the most favoured location/sector combination for investors when investing in Europe.

Respondents to the European survey saw Germany, with its strong economy, having the lowest risk.

The Nordic market has increased in popularity, with the retail and office markets now rated as the second and third most preferred location/sector combination in Europe.

Investors’ preferred location in Asia is China. This country is classified as an emerging market with more value added/opportunity characteristics. China industrial/logistics, India residential, China office, Australian office and Japan office were the second most popular investment location/sector combinations.

For the future, the challenges that investors say face fund managers are comparable in Europe and Asia. According to 63% of investors, the ability to raise capital is seen as the biggest obstacle for fund managers of European funds. Although less of a challenge in Asia, 44% of investors still think it is a major obstacle.

For both regions, investors are concerned about the ability of fund managers to achieve target returns. Around 55% of investors think this is a major hurdle for European fund managers and slightly lower, at 50%, for Asian ones. The ability to secure financing by managers in Europe is also a concern for investors.

There are differences between Europe and Asia when it comes to hiring and retaining staff. In Europe, this is not seen as a significant obstacle for fund managers, but in Asia, half of the investors are concerned that it will be hard for managers to secure the right personnel.

This could be due to the non-listed property funds industry in Asia being less developed, and therefore having access to a smaller pool of expertise.

When selecting a fund in Asia or in Europe, investors rank the manager’s track record as the most important criteria. This is the case for close to 50% of investors for the selection of European funds and even higher for Asian funds, at 56%.

The manager’s local presence is more important in Asia compared with Europe, although the differences are small, at 39% and 33% respectively. This can be explained by the majority of investors in both surveys coming from Europe, so they would most likely rely even more on local expertise outside their home region.

Importance of fund style

Fund style seems to be much more important to investors selecting European funds compared with Asian ones. Close to 50% of investors in European funds rank style as one of their three most important criteria. The figure is substantially lower, at 17%, for Asian funds.

Finally, corporate governance seems to be much more important in Asia compared with Europe. Close to 30% of investors think it is one of the major criteria when selecting Asian funds, but this is much lower at 7% for European funds. The higher use of the INREV Guidelines in Europe, which include recommendations on corporate governance, could be one reason for this, says INREV.