More on sovereign wealth funds
Funds from China, Norway, Singapore and Dubai are all making moves into the real estate market, with more set to follow.
Michael Cutteridge, director in the capital markets team at global real estate advisor DTZ, says: "These funds are going to get massive. There are going to be billions of dollars in them and the funds will be placed around the globe."
He says the largest funds are going to come from China but there will also be the petrodollar funds from the Middle East and Norway and the superannuation funds from such countries as Australia and Canada. Open-ended funds from Germany will remain very big global investors too.
"There’s no shortage of equity," says Cutteridge. "There may be shortage of product." There have been several formal announcements from sovereign funds recently, along with strong indications from others as to future commitments to real estate investment.
Norway’s €261 billion Government Pension Fund (formerly the Petroleum Fund) is set to announce a new real estate asset class for its portfolio in its April budget, according to the country’s finance ministry.
The fund is believed to be setting an initial 3% limit – €7.5 billion, according to its current value but it is estimated to reach NKr3.5 trillion (€435 billion).
GIC Real Estate, the property investment arm of the Government of Singapore Investment Corp, is making a joint €400 million acquisition with ING Real Estate of an Italian shopping centre.
An as yet unidentified Chinese sovereign or semi-public investment fund is considering putting €20 billion into German commercial property. The fund has reportedly set up a holding company in Switzerland in preparation.
The Investment Corporation of Dubai is in talks with Spanish property fund Colonial about buying a stake, with a view to a possible full takeover.
Cutteridge says other sovereign wealth funds moving into real estate, or increasing existing exposure, will include Kuwait, Russia, South Africa, Dubai, China, Japan, Taiwan, Malaysia, Hong Kong and Singapore.
"They are all going to have hundreds of millions of dollars, in some cases billions of dollars, invested in real estate," he says. "So their assets under management will be huge and we will see them grow, we think about $4 billion to $10 billion over the next five years or so."
The UK real estate market is set to be one of the homes for these new funds, having undergone a big repricing in recent months. While many industry analysts felt the market became overpriced last year, the correction, aggravated by the global credit crunch, has brought prices back to more attractive levels.
Continental Europe could face a similar repricing within the next year and then enjoy similar inflows. Cutteridge identifies Sweden, the Netherlands and Germany as prime targets for the new funds.
The picture in the US is less certain but US Reits and property trusts are set to be the most attractive investments.