Japan and Australia are expected to be the most attractive markets for institutional investors
Capital raising in private real estate in the APAC region is under pressure, according to a new report.
Launched by global law firm Goodwin, together with professional services firm KPMG in Singapore and IQ-EQ Fund Services, the report, "State of Play: Current Trends in APAC Private Real Estate Funds" reveals that Japan and Australia are expected to be the most attractive markets for institutional investors.
The report indicates that capital-raising for APAC real estate funds could be challenging at the moment. Whilst many Limited Partners (LPs) and General Partners (GPs) have still seen interest in APAC from selective pockets of European and North American investors, nearly half of them expect Asian investors to make up the largest capital base for their APAC mandates. Within that, Singaporean and Japanese investors were expected to comprise the lion’s share.
Private credit has seen a significant rise in popularity, with GPs and LPs both preferring to be lenders rather than borrowers in a high interest rate environment.
The report drew insights from more than 40 senior professionals in the APAC private equity real estate industry.
“Like everyone in the industry the co-authors have seen the impact that global headwinds are having on the APAC real estate funds market,” said Matthew Nortcliff, a partner at Goodwin and co-author of the report. “In the current climate, both GPs and LPs are having to re-assess where and how they can find the best risk-adjusted returns and so we considered this to be a perfect time to canvas key industry players and take a snapshot of current thinking.”
The majority of LPs and GPs surveyed concur that APAC was the most under-allocated-to region globally. This is attributed primarily to the resilience of developed markets in APAC. There was a perception amongst Asia-based real estate professionals that re-pricing of assets will occur sooner in Europe and North America than in APAC and that more capital would flow to those re-priced markets.
Other key findings include:
- India is expected to be the main beneficiary of disruption in other growth markets
India, for many interviewees, had the ability to provide scalable emerging market exposure and there had been a clear uptick in appetite for Indian assets, particularly in the industrial sector.
- Investor sentiment on Japan, Australia and Korea is positive, in pockets
Australia, Japan and Korea remain attractive to investors, with different sectors proving popular in each market.
- Allocation to Singapore or other Southeast Asian markets remain low
Aside from Australia, Japan and Korea, Singapore was the one other APAC jurisdiction in which almost all GPs and LPs expressed some degree of interest in investing, although pricing is currently a challenge for most buyers.
- Interest in private credit at all-time high while secondaries are just getting started
When discussing different sectors in the APAC real estate market, respondents showed an all- time high level of interest in private credit amid a backdrop of rising interest rates and conventional lenders becoming more conservative in their lending.
- ESG now a tier 1 consideration when investing in APAC
When considering whether to invest, ESG issues are on the radar for all market participants in APAC real estate.
The report has been prepared solely on the basis of interviews with participants in the APAC private equity real estate industry. The interviews were conducted by the co-authors between 28 July 2023 and 31 August 2023.