Around 50 APAC real estate funds worth $50.9b set to expire by 2016

Can the market absorb this excess liquidity?

In the run up to the Global Financial Crisis, Asia Pacific experienced a boom of new real estate funds driven by a heady mix of liquidity, capital market fundamentals and expectation of high risk-adjusted returns. Now, based on the typical fund life of eight years, CBRE predicts that approximately 50 funds with a gross asset value of about $50.9 billion (US$40 billion) will expire in 2015-2016.

These funds were primarily focused in the opportunistic risk segment and showed a strong preference for assets in major markets in the Asia Pacific region, in particular Australia, Japan and China—assets that with the onset of the GFC saw significant impact on their value.

Given historical disposition levels and current investment appetite, CBRE forecasts that the market will only be able to absorb around 75% of the liquidity created by the disposals of closed-end funds scheduled to expire in 2015 and 2016.

However, this estimation depends on various factors, such as ongoing investment sentiment, the fund raising environment and the participation of institutional investors. There are also different levels of challenges for successful disposals depending on the location and quality of the portfolios. 

According to CBRE’s research, the shortfall between the potential liquidity of funds ending their lifespan and the market’s ability to absorb these assets will be around $12.7b (US$10 b) in the coming two years. However, CBRE also believes that the wave of potential disposals by funds will not exert a significant shock to the regional real estate market.

A review of the assets available for disposal by real estate funds entering the termination phase shows that around 65% are in China, Japan and Australia.