But lately the trend has accelerated, in particular among Asian investors, who are taking advantage of the strength of their currencies and the environment of low interest rates to increase their investment in these physical assets.
They are not the only ones. According to the Sovereign Investment Lab at Bocconi University in Milan, sovereign wealth funds made 38 commercial property investment deals across the world last year for a total value of almost $10 billion, as they continued to seek alternatives to volatile equity markets and low-yielding bonds.
Hedge funds have also been reported as increasing their stakes in commercial, mortgage-backed securities.
A lot of wealthy individuals “are already well invested with residential properties in different countries, and they have shown some interest in diversifying further in commercial properties,” said Joseph Poon, head of ultra high net worth, South Asia, at UBS Wealth Management in Singapore. He said that he was seeing interest from Asian clients in commercial properties in London and Australia, as well as in distressed commercial properties in Europe and the United States.
Su Shan Tan, the group head of wealth management at DBS, agreed. “Traditionally, ultrahigh-net-worth individuals” — defined as those with $50 million in investable assets — “have always invested in commercial properties to some extent, be it office, retail or hospitality, often depending on which business sector they have an operating business” in, she said. “But the recent trend has been primarily driven by loose monetary policies globally, as you have very cheap money available everywhere, and by central bankers, all trying to talk down their own currencies.”
Ms. Tan noted that there had been particular interest from Asian buyers in the British commercial property market, based on the significant depreciation of the pound against many Asian currencies in recent years: The pound has fallen about 6 percent against the Singapore dollar in the past two years and 20 percent against the renminbi.
Other factors, she said, are that British common law is familiar, especially to clients in Singapore and Hong Kong, both former colonies, and many Asian clients already own residential properties in Britain and thus understand the property market there.
She said there had also been some investment flows into the property market in the United States, but mainly through mortgage-backed securities, rather than through the purchase of the physical assets, though the bank has had clients who have invested directly in New York, San Francisco and Boston.
Other wealth managers confirmed that they too were seeing an upward trend in investment in commercial property.
According to Megan Walters, the head of research for Asian Pacific markets at Jones Lang LaSalle, global direct commercial investment rose 24 percent year-on-year in 2012 to total about $440 billion, and the company is forecasting that it could reach $450 billion to $500 billion this year.
“The relatively robust end to the year demonstrates that real estate markets are well through the recovery phase of the cycle,” Ms. Walters said. “We anticipate that 2013 will record a similar performance.”
Wealthy individuals “like buying in cities they know well, which means either home locations, or cities with family links, often where family members have been to school or university,” she said. “They particularly like London, as a global city with ease of entry for foreign capital.”
London topped the list of commercial real estate by transaction volumes last year, with $56.1 billion, Ms. Walters said, citing figures compiled by her company. “About 63 percent of the buyers were from overseas,” she said.
She said major markets would continue to do well as investors remained attracted to real estate for its yields, currently higher than can be achieved in many other asset classes.
Article source: http://www.nytimes.com/2013/04/29/business/global/29iht-nwproperty29.html?partner=rss&emc=rss
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