‘From an office-led strategy to sectoral diversification’

Eric Cheah, Head of Investment Management, Asia Pacific, Union Investment Real Estate

The view from Asia is similar to that from Europe as investors have the same ‘late cycle behaviour’ that seeks to combine aggressive investing with caution, selectivity and prudence, Eric Cheah, Head of Investment Management, Asia Pacific, Union Investment Real Estate, told Real Estate Day.

Asia, like Europe, is a region that has many countries that are very different both in structural real estate matters and in terms of regulation, taxation and cultural nuances. 

Like Europe, it is being increasingly targeted by foreign capital that has to compete with domestic players, he said: ‘The levels of attention are extremely high, especially now that the hedging costs between the euro and the US dollar make the region look more attractive on a relative basis’.  

Union started by investing in offices but at this late-cycle stage it is now diversifying into other asset classes to exploit all opportunities. 

‘It has always been an office-led, CBD-centric strategy but in the last twelve months or so we have spent more time and more energy on a new type of diversification,’ Cheah said. ‘Where before we diversified by geography by going into secondary markets, we now focus on sectoral diversification’.

Offices in the CBD with good credit quality tenants have the advantage of being a simple story to sell, require less asset management and provide great liquidity, so they will remain the bedrock. The key ‘new’ sectors that have been chosen for Union’s selective expansion beyond offices are hotels (only with master leases) and industrial, he said: ‘These are two sectors that require more specialisation and asset management, but they are a good bet in this late-cycle phase’.

Retail is not a popular topic among investors at the moment, Cheah said, but it remains on the agenda because ‘it is worth investing and understanding that market to be ready in case there is potential for better returns in the future’. 

Looking ahead at future trends, he predicts that there will be more international money looking to invest in the region and ‘that weight of capital will keep cap rates compressed’.

‘What we need to keep an eye on is the old school real estate rules,’ said Cheah. ‘We must pay attention to where we are in the rental cycle and we must be prudent about the investments we make. Devaluation risk is one of the things we should be mindful of’.