The growing importance of joint venture deals

February 23, 2015 / By  

This year’s ANREV Investor Intentions Survey shows how important joint venture (JV) deals have become in Asia Pacific’s commercial real estate markets. 40 percent of respondents to the survey, weighted by the size of the assets under management, said they would be dedicating more investments to JVs and club deals within their Asia Pacific allocations.

The survey which is in its eight year has a number of interesting changes. It’s now combined with INREV and EPRA and had responses from 144 institutional investors with total global real estate assets under management of USD 585.6 billion. The survey also polled fund managers and fund of fund managers in total 193 respondents, with global real estate assets under management in excess of USD 1,675 billion. To put that into context – total commercial real estate transaction volumes for all deals in Asia Pacific amounted to approximately USD 130 billion.

The survey finds that nearly 60% of Asia Pacific based respondents expect to increase their allocations to real estate, with diversification remaining the top reason for investing in the sector. Asia Pacific investors are demonstrating geographic diversification with almost 30% expected to invest in North America, and a further 26% targeting Europe. Current allocations by Asia Pacific investors show approximately 68% in Asia Pacific, 17% in Europe and 14% in US.

Although the investor respondents outside Asia Pacific tend to view Europe or the US as more favourable view than Asia Pacific, a full 94% of fund managers intend to increase their allocations to Asia Pacific.

Amongst the revisions and improvements to the survey this year, was an adjustment in reporting results to better understand the differences between large and small investors by weighting their responses by the size of the real estate assets they held under management. The weighting of the responses drew out the key finding to show just how important JVs are likely to become.

Two reasons appear to be driving this- a desire for additional control over investments and shortage of product; the JV route being a convenient way to access stock. For the first time in the eight years the survey has been running, the top barrier to investing was lack of product, rather than market transparency that has been the case in all previous years.

A comparison between 2013 and 2014 numbers show that Australia JVs transaction volume, as a percentage of total deal volumes, rose 8% to 16% year-on-year (y-o-y), as more JV deals were done, outpacing the growth in total deal volumes. Likewise, Singapore JVs transaction volume jumped 10% to 25% as it held steady at the US$1.5 billion mark, despite lower total transaction volumes. Though China and Japan both saw a y-o-y dip in JV transaction volumes, JLL anticipates the JV trend to pick up in these countries in 2015 as more fund managers allocate funds into JVs and club deals in Asia Pacific.

In line with previous years’, Tokyo office markets remained the top pick followed closely by Sydney at 57% and 53% percent respectively, closely followed by Melbourne. China tier-one cities ranked fourth as destinations for capital.

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