Exclusive: Asian investors look to increase European real estate allocations, says GARBE

Asian investors are looking to increase their allocations to European real estate as they diversify away from the US and reassess opportunities following the repricing of property markets, according to GARBE.

The US has historically accounted for around 50% to 60% of overseas allocations for many Asian investors, but Europe is likely to capture a greater share in future, Chenhui Xia, managing director of GARBE Capital & Strategy Asia, told a GARBE PYRAMID 2026 webinar on 3 September organised in association with Real Asset Media.

“Previously, I think the US has taken roughly 50% to 60% of overseas allocation for most of the Asian investors,” he said. “In the last few years, I feel Asian investors have started to work towards a higher allocation for European real estate markets.”

He said high interest rates, energy costs and inflation were delaying immediate investment, but regarded those constraints as temporary as investors sought greater geographical diversification.

“However, I do believe that is temporary because there’s no choice,” Xia said. “If you want to keep your real estate allocation as it is, which is the case for most investors — if not increasing — the US should become a little smaller in your portfolio.”

The UK is currently at the front of the list for Asian investors because of its scale, transparency, legal and institutional framework and supply-demand dynamics. The Netherlands follows from a logistics investment perspective, while Germany and France are also high-priority markets because of the size of their consumer markets.

Xia said investors had also started looking more closely at southern Europe, with Spain and Italy attracting significant Asian investment since last year.

“This is a very good sign from my perspective, because the pie is getting bigger,” he said. “The investable market for Asian investors is getting bigger. Europe has a bigger role to play in their allocations.”

European property pricing has corrected substantially since the 2021 peak, while leasing fundamentals have remained relatively stable. He said the spread between borrowing costs and capitalisation rates was around 1.5%, providing positive leverage and improving Europe’s relative attractiveness compared with a number of Asia-Pacific markets.

The investment rationale has also shifted away from strategies dependent on cheap financing and yield compression towards the quality and growth of income. Sustainable income, cash-flow visibility and the prospects for income growth were becoming more important considerations for investors.

Tobias Kassner, head of research and member of the executive board at GARBE Industrial, said industrial and logistics property continued to benefit from investor confidence despite wider uncertainty.

“This is because the cash flow quality and the quality of the asset class itself is basically fundamentally very solid and thus the investors have a very good understanding of the markets and trust into the segment itself,” Kassner said.

Xia said Asian capital should not be treated as a single category because investors from different countries have markedly different requirements.

Japanese investors remain under-allocated to real estate and are generally risk averse, placing particular importance on returns, currency hedging, execution capability and trust in partners. South Korean investors have become more focused on downside protection, partner quality and exit strategies after lessons from the previous market cycle.

Chinese and Hong Kong investors have been quieter in recent years, partly because of controls on outbound capital, but Xia said logistics occupies a distinctive position.

“However, logistics industrial properties are not considered as a real estate investment in the framework of Chinese government,” he said. “It’s more considered as infrastructure investment, meaning they are still encouraged to invest into meaningful logistics properties abroad.”

Singaporean investors are highly selective and focused on quality and expertise, while Malaysian investors tend to place greater emphasis on long-term relationships. Australian investors focus more on platforms, sector expertise, operational capabilities and alignment of interests.

The expansion of Asian occupiers in Europe is also supporting the investment case for logistics. Xia said supply had fallen significantly while demand had held up, with large Chinese e-commerce companies expanding rapidly in Europe.

He said investors could access the European market through a range of structures, including joint ventures, co-investments, funds and separate accounts. He believes the European market is around the bottom of the cycle and questions how much longer Asian investors will delay the next wave of capital deployment.

He added: “I would say Europe does offer a quite interesting timing for investors to come in.”