What became apparent in the latter part of 2014 and the beginning of this year in the U.S. is now spreading to Europe. Specifically, the surge of Asian investment in European hotels, which CBRE says will reach some US$22.7 billion in 2015, fed by the easing of domestic controls regulating outbound investment.
Asian hotel real estate acquisitions in Europe surged by 90 percent year-over-year in 2014 and by 20 percent globally, CBRE reports, and as reported by World Property Channel. With limited investable stock available in domestic markets, CBRE forecasts that hotel acquisitions by Asian investors could rise by as much as 58 percent in Europe this year.
"Asian institutional funds are generally under-allocated to real estate because of stringent regulations, especially around overseas assets. Most of their overseas allocations are in liquid assets such as equities, cash, fixed income and government bonds," said Arthur Buser, executive managing director of CBRE Hotels Asia Pacific. " This situation is changing as China, South Korea, Taiwan and other countries have started to allow overseas direct investments, higher allocations to real estate, and a simplified approval process.
"Hotel real estate is an ideal asset class for insurance companies diversifying their portfolios—fixed-income lease terms are often longer than other asset types, and yields are presently above traditional real estate segments, even in prime locations. This has made hotels in large European cities such as Paris, Frankfurt and particularly London, attractive for Asian investors."
CBRE predicts that the combined effect of an increase in the total value of assets held by Asian insurers and increasing liberalization will result in their investment assets growing from US$129.3 billion in 2013 to US$204.2 billion in 2018. This would translate into additional inflows of about US$75 billion into real estate—including direct and indirect investment.
High-profile acquisitions by Chinese investment groups into overseas real estate, particularly hotels, indicate that a large portion of global hotel transactions will be completed by Asian capital in 2015. Fosun, China's largest privately held conglomerate, won the right to acquire Club Med for US$25 million per share, valuing the company at US$953.5 million. Hilton Worldwide recently completed the sale of the Waldorf Astoria hotel in New York to China's Anbang Insurance and Sunshine Insurance Group, has announced plans to buy the Baccarat Hotel New York for US$230 million.
CBRE Hotels EMEA Director Jileen Loo said, "The first wave of Asian hotel buyers was largely by REITS, high-net worth individuals or emotive purchasers looking to acquire trophy hotel assets for wealth preservation and prestige. Due to a series of relaxations in domestic government policies, Asian insurance funds, particularly from China, are now entering the global hotel market in a big way. These buyers are finding limited investable stock available for consideration in domestic markets and when quality assets become available, the competition is fierce.
"Legal liberalization will speed up the pace of global real estate investments by Asian insurance companies and we expect that further overseas hotel acquisitions will take place as regulators gain more confidence about overseeing such investments and insurance firms become savvier about investing globally."