Real Estate Fundraising in 2023 – Aurex Group Insight into Markets and Recruitment

The Asia Pacific region has been a major player in the global real estate market for many years. Recently, however, the market has experienced significant fluctuations that have shaped its current landscapes with Asia now facing a shift in institutional capital raising within the real estate industry. Understanding who is investing, how much they are investing, and where they are investing has become integral to success in this sector.As the market continues to evolve and adapt, investors and industry professionals must stay informed to take advantage of the emerging opportunities. Whether you’re a seasoned investor looking to stay ahead of the curve, or simply curious about the real estate fundraising market in the Asia Pacific (APAC) region, our Aurex Group experts highlight why this is undoubtedly a market worth watching.

Fluctuations in capital inflow and outflow shift investor choices in Asia

North American investment in APAC faded in the latter half of 2022, falling from US$8.5 billion in 2021 to US$3 billion in 2022. Despite the drop, the US remained the largest source of capital outside the Asia Pacific region. In contrast, European investment in APAC strengthened in H2 2022, largely thanks to M&G’s acquisition of the Minato Mirai Center Building in Yokohama, Japan, worth US$831 million.

Japan and India accounted for 60% of capital inflows to APAC in 2022, with Japan remaining the top market for western investors. A big shift for mainland China occurred as western investments weakened during the pandemic. However, APAC investors purchased more within their own region in 2022, with mainland China remaining the top investment destination for APAC buyers with US$22.8 billion worth of investments, followed by Singapore and Japan.

While investors from Korea, Australia and Japan continue to allocate more funds outside of APAC than within the region, overseas investments have gone down by 40% year-on-year mainly impacted by high interest rates, anti-pandemic restrictions and exchange rate volatility. Currency depreciation of the JPY, KRW, AUD and RMB due to the widening interest rate gap with the US made overseas properties more expensive for APAC buyers.

Key fund launches in Asia worth a mention

There have been some remarkable recent fund launches in Asia, including the Tishman Speyer and Raffles Family Office inaugural APAC Opportunity Fund I, seeking to capitalise on the unique advantages of family offices and address the increasingly complex asset management needs of the private wealth market. This collaboration aims to grant private wealth investors unparalleled access into tailored, institutional-grade real estate investments and capitalise on the longer-term secular tailwinds across the Asia Pacific region.

Blackstone, KKR, and Starwood Capital are among the private equity firms that have also been raising funds in the region, with Blackstone closing its record-setting US$30.4 billion Real Estate Partners X fund after the end of Q1, 2023; while Bain Capital is nearing the final close of its fifth and biggest Asia-focused fund after having raised around US$6 billion from global investors, according to Reuters.

Southeast Asia deployment trends

In Asia, investors have been cautious about deploying capital in China due to an economic slowdown, regulatory crackdown, and Sino-U.S. tensions, which cast a shadow over Asia funds with a heavier allocation to the country. India was the only market in APAC to attract more international capital in 2022 compared to the previous year. While Singapore remains the largest source of capital from APAC with investors deploying US$15.8 billion into global real estate in 2022, investment halved compared to 2021.

GIC, Capitaland and Mapletree remain among the most active Singaporean investors building global real estate portfolios.

Greater China deployment trends

In mainland China, western investment fell to just US$500 million in 2022. While foreign investors are cautious, domestic investors, including SOEs, insurance providers, and trust firms, continue to be the main funding channels in China’s real estate market, preferring project-based investment rather than investing in a blind pool.

The Asset Management Association of China resumed approvals for private equity funds to raise money for residential property developments in January 2023, contributing to the efforts to boost the property market and the economy.

This year, there were several new fund launches and capital raises in China, including:

DNE Group raising RMB 6 billion (US$870 million) in its New Economy Infrastructure Fund in March 2023
CapitaLand China Data Centre Partners raising S$530 million (US$394 million) in March 2023 for its third data centre fund
CapitaLand Investment launching the CapitaLand China Opportunistic Partners Programme in February 2023 to invest in special situation opportunities in China

In China, C-REITs allow logistics developers to exit RMB-denominated funds and properties without risks associated with foreign exchange fluctuations, with the listed funds also offering higher levels of liquidity to investors. While logistics REITs have been active on mainland exchanges for less than two years, the listed vehicles have already garnered support from domestic insurance companies, major asset managers, and other institutional investors looking for the stable recurring income available through logistics properties.

Australia deployment trends

According to the ANREV Investor Sentiment Survey for 2023, Australia ranks the third most favoured destination for capital deployment. Overall, the statistics show that institutional investors see tremendous growth potential for the Australian real estate market and are keen to take advantage of the opportunities presented by this favourable environment.

High Net Worth capital becoming increasingly prominent across Asia

Real estate fund managers are always on the lookout to raise capital, and recent trends suggest that as institutional investors take a back seat, private wealth will become increasingly prominent, especially in the Singapore context.

As more institutional real estate fund managers turn to high net worth (HNW) clients for financing, Blackstone B-Reit stands out as a prime example. With several institutional investor redemptions in recent years, they have shown that HNW investors are willing to invest in institutional real estate. Real estate is a popular asset class for HNW investors, who are attracted to the potential for high returns, diversification benefits, and the ability to invest in tangible assets.

HNW investors have been showing strong interest in real estate funds that focus on Asia, as the region has been experiencing rapid economic growth and urbanisation, driving demand for real estate. According to a report by PwC, APAC is expected to account for more than half of global real estate investment by 2025.

Southeast Asia & Greater China

Clients have been treading cautiously when investing in funds with a heavier allocation to China. Some investors are turning to other countries in the region such as India and Southeast Asia for investment opportunities.

Such capital, typically with less stringent underwriting hurdles, focuses on the luxury residential market, strata-titled commercial space and shophouses. Interest in hospitality assets have also been picking up due to the recovery in tourism.

Australia

According to a recent report published in 2023 by the Association for Real Estate Investment Trusts, the ANREV Investor Sentiment Survey shows HNW investors have become increasingly important in providing capital for real estate projects in Australia. The trend towards attracting HNW investors may be attributed to two factors: more attractive returns for investors and a lack of capital from traditional institutional sources.

The ANREV survey found that nearly two-thirds of all capital raised by institutional real estate investors in Australia came from HNW individuals over the past year, a trend that has been increasing over the last two years. This is much higher than the global average of around one third, indicating that Australia is leading the charge in mobilising HNW investors for real estate investments. The report also found that HNW investors are more likely to invest in real estate through direct ownership or a limited partnership arrangement than institutional players; suggesting investors see real estate as a long-term asset and not just a short-term investment.

The report further revealed Australian investors were responsible for more than half of the global capital raised for institutional real estate investments within Australia. This is dwarfing their international counterparts and shows that investors are not only confident in growing their portfolios but also have an eye to future returns. This has been in part driven by attractive yields, with prime rental rates consistently increasing and net operating income growth for core office assets, in particular, remaining strong.

HNW investors provide more capital for larger transactions, allowing them to achieve greater diversification and scale. According to the survey, the number of HNW investors that had invested in real estate within Australia over the previous 12 months had grown by 4.5%. This accounted for 17% of all institutional investors surveyed. As the market matures and investor confidence increases, there are more opportunities for new entrants into the Australian real estate market from a wide range of domestic and international investors.

The trend towards HNW investors is particularly appealing for those looking to invest in real estate as the capital requirements are typically lower and often have more flexibility with the type of asset being acquired. This allows for a high degree of portfolio diversification and greater liquidity than traditional investment funds may offer.

The survey revealed that more than half of the investors indicated a desire to increase their investments in Australian real estate over the coming year. This is likely due to the growing confidence in the Australian economy, as well as the potential for capital appreciation in the long-term. The survey also found that a large proportion of institutional investors are now looking to attract HNW investors into their portfolios.

Aurex Group’s recruitment lens on the hiring impact in Asia

Over the last six to nine months, our Aurex Group team has been observing a range of trends across the APAC region and break them down below to share insight into the current and future hiring landscape.

Increased hiring across investor relations and capital raising roles

The demand for investor relations and capital raising professionals has increased, along with professionals able to handle relationships between local investors and overseas fund managers. Some fundraising candidates have been transitioning from raising offshore capital to raising onshore capital, but this can be challenging as it requires rebuilding a new investor network and building relationships with domestic investors.

Private wealth experts are in demand

Institutional real estate managers are keenly aware of the increasing need for distribution talent to raise HNW capital, leveraging networks across wealth management and IFA’s. Traditionally these types of profiles come from more generalist backgrounds within the financial services industry, however, they can transition into a specialist sector relatively easy. This has been very evident across Australia but has also become a general trend across the region.

Reduced hiring across investment roles in Asia

Real estate companies, including developers, asset managers, and investment firms, may scale back their hiring plans due to a decrease in capital raising (less funding available for new projects and investments). Be aware that investors may be more cautious or selective in deploying their capital, hence the diminished need for new investment headcounts.

Focus on active asset management

During a slowdown, real estate companies tend to focus more on managing existing assets rather than undertaking new developments or acquisitions. This shift of focus leads to greater emphasis on active portfolio management, leasing, and asset optimisation skillsets.

Impact on related industries

The real estate sector has strong links with other industries such as construction, architecture, brokerage, finance, and legal services. Be mindful that a slowdown in real estate capital raising can have a ripple effect on these industries as well.

Digital transformation

Real estate companies in APAC have been increasingly adopting technology and digital solutions to enhance efficiency and productivity. This has led to a rising demand for professionals with expertise in data analytics, artificial intelligence, proptech, and digital marketing. Skills in areas such as smart buildings, Internet of Things (IoT), and property technology are highly sought after.

Sustainability and ESG focus

Global investors have formalised ESG criteria, which need to be met before investments can be presented. To remain relevant and competitive in the tough fundraising environment, real estate companies are prioritising professionals who can contribute to sustainable and green practices.

Alongside the shift in the recruitment landscape and hiring preferences, Aurex Group also anticipates the following trends to have an impact on the market.

Pricing and valuation effects

With less capital available for new investments, there may be downward pressure on property prices as demand weakens relative to supply. This could present opportunities for investors with available funds to negotiate better deals or acquire assets at potentially lower prices.

Shift in investor preferences

With investment preferences changing due to market conditions, investors may be prompted to reassess their investment strategies and consider alternative asset classes (Data Centre, Build-to-Rent, Logistics, Life Science etc).

While the slowdown in capital raising may present challenges for real estate companies and professionals in the short term, Aurex Group also believes it creates opportunities for those who are able to adapt and innovate. By staying up to date on the latest trends and investing in the right talent and technology, real estate companies and industry professionals can continue to thrive and succeed in the ever-changing fundraising environment in the Asia Pacific.

To find out more about this latest insight from Aurex Group, please connect with our team via www.aurexgroup.com.

References:

Aurex Group can help

If you are a company considering hiring, we welcome the opportunity to present our services and capabilities. If you are a candidate, please check our jobs page or contact us to discuss your background, skills, and future aspirations. We always look forward to staying connected and exchanging ideas, insights, and opinions.