Historically, private real estate funds investing in Asia are typically managed by Asian, European and US firms. Since 2004, the proportion of Asia-focused private real estate funds raised by Asia-based managers has been on the rise. From 50% in 2004, unlisted vehicles managed by Asia-headquartered real estate firms grew to 81% of all funds closed in 2012. The increasing prominence of domestic real estate firms in Asia suggests that the market is maturing, with both investors and fund managers growing in sophistication and investment knowledge. The rise in fortunes of domestic firms is unfortunately not matched by US firms. Initially making up 36% of all Asia-focused private real estate funds to have held a final close in 2004, US-managed vehicles formed only 15% of all funds closed last year. Meanwhile, Europe-based real estate firms have roughly held steady between 2004 and 2012; the proportion of Asia-based funds they manage is in the mid-teens each year.
Preqin’s data shows that the four most common sectors targeted by Asia-focused private real estate funds are residential, retail, office and industrial assets. In every year since 2004, funds investing in residential properties - including apartments and multi-family dwellings – have consistently formed more than half of all Asia-focused vehicles that successfully completed fundraising. The increase in appetite for retail assets peaked in 2008, when 50% of all Asia-focused funds that held a final close in that year expressed an interest in the sector. By 2012, only 26% were looking at retail or shopping centre properties. Industrial assets seem to have fallen out of favour with managers raising Asia-focused funds recently – none of the vehicles that closed in 2011 and 2012 had any interest in industrial estates. This is likely due to a general slowdown in overall manufacturing activities in Asia caused by weaker order books when both Europe and the US were picking their way through domestic economic crises.
All in all, there have been perceptible changes in the Asian real estate market from 2004 till now. Along the way, the market has grown to be increasingly managed by homegrown fund managers, and we have seen how macro global events can have a knock-on effect on strategy and sector preferences. The Asian real estate market has still got plenty of room to grow; significantly, nations such as Indonesia and Myanmar are on the cusp of their next stage of economic transformation. Investors and fund managers which want to participate in the growth story of the region should ensure they stay on top of changes in the market.