Institutions’ quest for income-producing properties

  • Published: 19 Sep 2018 at 12:06 2 comments
  • WRITER: Khanachai Kittisorayut and Thanawin Suppakarnpanich, CBRE

AIA Capital Center on Ratchadaphisek Road in Bangkok is a 34-storey grade A office building with 54,000 sq m of office space and 4,500 sq m of retail space. (Photo supplied by CBRE)

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Globally, institutional investors such as pension funds, sovereign wealth funds and insurance companies invest in income-producing properties as part of their investment portfolios to earn steady and predictable income streams and the potential for capital growth.

Many of these investors buy properties overseas, as well as in their own markets.

According to the 2018 CBRE Global Investor Intentions Survey, the top three preferred cities for investment in Asia-Pacific are Tokyo, Melbourne, and Singapore. This was because of high investment liquidity and transparency of the property markets in these countries, along with a high level of legal protection and low foreign investor restrictions.

CBRE believes that Thailand is not a top destination for foreign institutional investors because of foreign ownership restrictions. Overseas investment has come mainly from property development companies forming joint ventures with Thai partners to build new projects, mainly in the residential-for-sale sector.

Although there is demand from Thai institutional investors to buy income-producing properties, the challenge has been that very few existing owners of these properties want to sell their assets. Those who do prefer to sell to a property fund or to a real estate investment trust (REIT) that they have sponsored.

The Thai Government Pension Fund was the last local institutional investor who purchased grade A office buildings in Bangkok -- GPF Witthayu Towers (Diethelm Towers) on Wireless Road in 2006. The others it already owns are Bangkok City Tower on Sathorn Road and Abdulrahim Place on Rama 4.

There has not been an arms-length sale of a grade A office building to an unconnected third party for more than 10 years in Thailand due to the lack of properties available for sale. Consequently, some institutional investors have to become developers to create their own income-producing properties.

The AIA Group was the first life insurance company in Thailand to build and manage grade A office developments as income-producing properties. To date, it has built AIA Sathorn Tower and AIA Capital Center along Ratchadaphisek Road. Previously, life insurance companies only built and owned offices for their own occupation but now other life insurance groups are also planning to build office developments to generate recurring income. 

Demand from local institutional investors to own income-producing properties will continue to grow, but the challenge will be the lack of availability of buildings for sale.

Property development companies who are also looking for income-producing properties to diversify from the residential-for-sale sector are also facing similar challenges that are driving them to build their own investment properties.

One example is Ananda Development which announced a strategic partnership with Ascott to build four serviced apartments -- Somerset Rama 9, Ascott Embassy Sathorn, Ascott Thonglor, and LYF Sukhumvit Soi 8. Origin Property also set up One Origin Co Ltd to develop income-producing properties to lower the risk of relying on only one market segment.

The income-producing property sector in Bangkok is therefore likely to remain a much more illiquid market than the global gateway cities like London, New York, or Hong Kong which continue to be locations global investors consider to be the world’s top investment destinations.


Khanachai Kittisorayut and Thanawin Suppakarnpanich are analysts at Research and Consulting, CBRE Thailand. They can be reached at bangkok@cbre.co.th Facebook: CBREThailand LinkedIn: CBRE Thailand LINE: @CBRE Thailand Twitter: @CBREThailand and website: www.cbre.co.th

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