• EMEA

Chinese insurance companies are starting to splash out on commercial real estate globally. Their investments so far are just the tip of the ice berg

Chinese insurance companies were first permitted by the China Insurance Regulatory Commission to invest in domestic real estate and infrastructure for investment purposes in October 2009. Prior to that, they were only allowed to own properties for self-use. Successive deregulation has expanded Chinese insurers’ investment scope in real estate. In October 2012 domestic insurers were permitted to invest overseas in 45 countries, though they currently hold assets in fewer than ten countries. Today, regulations allow up to 30% of total assets to be invested in real estate and infrastructure, with overseas investment not exceeding 15% of total asset value.

The scope for exponential growth

At the end of 2014, real estate holdings totalled USD13.4bn, equivalent to 0.8% of total assets under management. Overseas holdings were even less, estimated at close to USD6bn. Recent notable transactions include Anbang Insurance paying a record USD1.95bn in Q4 2014 for the historic Waldorf Astoria hotel in New York, Ping An Insurance buying Tower Place in London for USD520m a year after its pioneer purchase of the Lloyd’s of London building in 2013, as well as China Life Insurance acquiring a 70% stake in 10 Upper Bank Street, London for USD445m in Q2 2014.

For the leading fifteen insurance companies, who represent three quarters of the industry, real estate holdings were typically no more than 2%. Combined with a low market penetration, and insurance premiums per capita at USD235 compared to USD2,000-USD9,000 for more established markets, the growth potential of this industry is exponential.

USD73bn new investment by 2019

Amid increased volatility in equity markets and a desire to diversify we see exponential growth in the amount of new capital coming to the market. Increasing overseas allocations from ca. 1% to 15% will not be easy, being the equivalent of investing over USD240bn. This is somewhat unrealistic in a short time frame. Taking proxies from Canadian pension funds a shift in allocations of close to 5% could be achieved by 2019 leading to an additional USD73bn of investment. In the following five years a similar amount could be invested taking overseas holdings to USD154bn. This would equate to an allocation of near 10%, although not unrealistic, we would expect growth to come through increased premiums.

Gateway cities the primary target

Leading gateway cities will form the initial focus of activity. Investments to date in London and New York underscore this move. Other leading cities which regularly witness transactions over USD100m will be the primary targets. In Asia Pacific these will include Singapore, Sydney and Tokyo. Activity in Europe will expand to the likes of Berlin, Frankfurt, Munich and Paris. North American markets of Chicago, Los Angeles, San Francisco, Toronto and Washington DC will also be on their list. The focus will be on mainstream sectors – office, retail, industrial, hotels and residential, offering stable long term income streams.

Increased development

The more sophisticated insurers are expected to move into development projects in major gateway cities. This is likely to be in partnership with domestic developers to benefit from their local knowledge and networks. In a highly competitive market where access to core assets is an increasing challenge, we have already seen initial forays into the development sphere. Tai Ping Insurance has embarked on a residential project in Manhattan, whilst Ping An and China Life are partnering with Tishman Speyer for a mixed-use project in Boston.

Broader horizons

Over the medium to longer term, and with growing experience, we foresee investment diversifying into a second wave of markets. The focus will remain on larger lots, but where the liquidity of such trades is relatively thinner. Markets such as Belgium, Brazil, Italy, Korea, the Netherlands, Spain and Sweden are potential targets. Equally we expect the range of asset types to expand. Alternative sectors such as data centres, healthcare, and more infrastructure related assets – airports, ports and energy farms may also emerge on the radar.

Nigel Almond

Head of Capital Markets Research

Leave a Reply

Your email address will not be published. Required fields are marked *

  • Regions

© 2017 Cushman & Wakefield, Inc.