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COMMERCIAL PROPERTY | Staff Reporter, Hong Kong

Only 3% of remaining APAC-focused private equity real estate funds are in Hong Kong

310 assets have been disposed.

It has been noted that Asia Pacific-focused private equity real estate funds disposed 310 assets, totaling US$25.5 billion in 2015—37% higher than the five-year average of US$18.7 billion.

According to a research note from CBRE, further, among the remaining assets for sale, 430 properties which remain to be disposed from real estate funds.

Only 3% of these assets are located in Hong Kong, which are mainly commercial and hospitality assets located on the fringes of Hong Kong Island.

Around 33% of the remaining assets are located in China, followed by 19% in Japan, 15% in Singapore and 14% in Australia. The office and retail sectors accounted for the bulk of sold assets with over 80% of the disposals.

Of the 50 funds CBRE estimated to expire in 2015 and 2016, 49% extended their fund life and 24% are still reviewing their exit strategies. Only 22% of the funds terminated as planned.

Here's more from CBRE:

Fund managers were most active in Japan, with the country accounting for 51% of the total assets sold via funds. Australia was the second most active market with 24% of fund dispositions followed by China with 9%.

Kam-hung Yu, Senior Managing Director, Investment Properties, CBRE Hong Kong, Commented: “Given the current economic climate, there’s a need for improved strategic planning and fund managers will need to look to dispose of their assets when market liquidity becomes adequate.

Investors should be more flexible towards asset pricing and evaluating the suitability of portfolio disposals against disposing of assets individually. In Hong Kong, most real estate assets have been disposed ahead of fund expiry, resulting in a lower portion of remaining portfolio (3%) among Asian markets.

We believe that the retail and hotel sectors in Hong Kong will continue to struggle in 2016, but the office market will remain upbeat. Yet, the sustained low vacancy and limited existing and future supply across all sectors will largely support the capital values of these properties in Hong Kong.”

Ada Choi, Senior Director, Research, CBRE Asia Pacific, commented: “The market was only able to absorb a certain amount of fund dispositions and as a result, we’ve only seen a relatively small percentage of funds that have been able to terminate as planned. In line with our recommendations, fund managers have been strategically planning their disposition process and nearly half of the funds which were scheduled to expire in 2015-2016 are actually extending their fund life.

As predicted, we’ve seen fund managers disposing of the more ‘saleable’ assets in their portfolio first, particularly those situated in high liquidity markets, such as in Japan and Australia. However, assets in less liquid markets where the economic climate is more challenging and which are less profitable tend to be viewed as less attractive to buyers, and are proving more challenging to dispose of.

Our research found that at least one third of the outstanding assets to be disposed in the region remain in China and the majority of these assets—mostly in retail and hospitality—are situated in lower-tier cities. Given the subdued Chinese market fundamentals, these assets continue to face difficulty in finding buyers or in being disposed of at desirable terms. Funds that have only disposed part of their portfolios likewise may need to look at alternative approaches such as extending fund life or be more flexible on pricing."

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