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Real estate industry

Private Equity Funds Outbid REITs for Asian Commercial Properties

Strategic Insights

— 2 min read

Private equity funds are outcompeting real estate investment trusts (REITs) for prime commercial properties in Asia, driven by attractive returns and limited investment-grade opportunities. The private equity units of banks such as CLSA, Goldman Sachs, and Morgan Stanley are bidding aggressively for Asian commercial properties, fueled by returns as high as double those in the United States and Europe. This trend is expected to continue, with funds raised for commercial property deals in Asia doubling in each of the past five years, reaching $28 billion in 2005.

Key Takeaways:

  • Private equity funds are outbidding REITs for Asian commercial properties due to attractive returns and limited investment-grade opportunities.
  • Funds raised for commercial property deals in Asia have doubled in each of the past five years, reaching $28 billion in 2005.
  • Private equity funds can freely deploy borrowed capital, while REITs are restricted by borrowing rules and shareholder approval requirements.
  • Office rents in Singapore rose 46 percent in the three months to September, with top rents increasing by 13 percent.
  • High-end rents in Hong Kong rose 39 percent in August from a year earlier.
  • Rents in the region are set to jump 8.7 percent over the next five years, compared with 3.3 percent in the United States and 3.7 percent in Europe.

Statistics:

  • $28 billion: the amount of funds raised for commercial property deals in Asia in 2005.
  • 89: the number of publicly traded REITs in Asia, excluding Australia.
  • $55 billion: the market value of REITs in Asia, excluding Australia, since the first REIT was launched in Japan in 2001.
  • 46 percent: the increase in office rents in Singapore in the three months to September.
  • 13 percent: the increase in high-end rents in Singapore.
  • 39 percent: the increase in office rents in Hong Kong in August from a year earlier.
  • 8.7 percent: the projected increase in rents in the region over the next five years.
  • 3.3 percent: the projected increase in rents in the United States over the next five years.
  • 3.7 percent: the projected increase in rents in Europe over the next five years.

Sources:

  • "Funds Raised for Commercial Property Deals in Asia Rise to $28 Billion" - Bloomberg News.
  • "Asia's REITs in Focus" - CLSA Research.
  • "Singapore Office Rents Rise to Highest Quarter-on-Quarter Increase in Over a Decade" - Jones Lang LaSalle.
  • "Hong Kong Office Rents Rise 39% in August from Year Earlier" - Knight Frank Petty.
  • "Rents in Asia Set to Jump 8.7% Over Next Five Years" - DTZ Debenham Tie Leung.

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