The flow of capital into the London real estate market, powered by changing investment criteria in predominantly Asian funds, looks set to continue with the reported move by the world’s largest pension fund, Japan’s Government Pension Investment Fund (GPIF). GPIF has until now invested the majority of its capital domestically, but has sought advice on whether to diversify into alternative international investment, including real estate. This is a move which will further increase international capital flows into the London property market, according to global property advisor, CBRE.
Other Asia-Pacific pension funds, such as Australia’s superannuation funds – benefiting from compulsory contribution schemes – and recently deregulated Taiwan insurers are also looking at increasing their exposure to European property. Central London attracted 21% of all European real estate investment in 2012, and is likely to be the favoured market for initial investment, owing in part to its transparency, liquidity, and availability of large quality assets.
Australia’s compulsory pension system has boosted total savings well beyond levels which could be absorbed domestically, and the rate of savings is expected to grow
exponentially following an increase in the necessary contributions employers
must make into the country’s superannuation funds. CBRE found that the limited
availability of large, high quality commercial property assets, as well as the need
to diversify, are motivating Australian funds to increase their portfolio
allocation to global property. Central London has historically suited buyers
with similar needs, and in recent years, Korean, Malaysian and Chinese
investors have been very active in the Capital’s property market.
CBRE research highlights that the value of sovereign wealth funds (SWFs) has grown rapidly over the past decade, from around $1.2 trillion at the end of 2002, to over $5 trillion a decade later, and since the financial crash real estate has attracted many, such as ADIA and NBIM, to shift their asset allocation from fixed income securities to alternative
asset types. In 2012, real estate attracted 36% more global SWF investment
compared to 2011.
Simon Barrowcliff, Executive Director, Central London Capital Markets, CBRE said: “As 66% of the world’s middle classes will be of Asian origin by 2030, it is inevitable that the corresponding volumes of assets under management by these countries’ pension funds will likely grow. By 2020, Australian superannuation funds will capture an additional USD $9.7 billion each year, and these funds are already looking at new destinations in which to invest. Central London property will capture a large share of this capital. These examples show the continuing weight of expected flows into the London real estate market, which will further support current prime pricing in the capital.”
