Sovereign Wealth Funds Shake Up European CRE Market, by Institutional Investor

File Type: Free Content, Article
Release Date: May 2014
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Asian investors, led by deep-pocketed sovereign wealth funds, are “snapping up properties, driving down yields and forcing traditional institutional buyers to look further afield for deals,” according to a May 12 Institutional Investor article, “Sovereign Wealth Funds Are Shaking Up the European Real Estate Market,” by Simon Meads. The strong demand also is pushing up prices for prime commercial real estate in London; Manchester, England; Cologne, Germany and other European cities.

The State Administration of Foreign Exchange (SAFE), the arm of the Chinese central bank that manages the nation’s vast currency reserves, has become a major player in the European commercial property market through its real estate unit, Gingko Tree Investment, as have other sovereign funds like Singaporean GIC, Kuala Lumpur-based Employees Provident Fund and Shenzhen-based Ping An Insurance (Group) Co. of China.

These and other Asia-based sovereign wealth funds have been buying commercial properties in London, other parts of the U.K. and elsewhere in Europe. Asian pension funds, in particular, are looking for diversity and “see good value even in the pricey end of the European market.” Yields are higher than they can find in Asia;” those on office property in Seoul, South Korea, for example, can be as low as 2 percent.

“The Chinese appetite for European investments seems voracious,” the article notes, adding that “faced with a huge wave of competing capital from Asia, some domestic buyers are being forced out of markets where they have long been active players.” Those domestic buyers have begun looking further afield for value, at properties in smaller cities or properties in need of refurbishment.