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SINGAPORE (Reuters) - Aviva Investors, the asset management arm of British insurer Aviva (AV.L), favours buying commercial real estate in Melbourne, Sydney and Tokyo where it believes office rents have bottomed and valuations appear attractive.
But Aviva Investors is wary about Hong Kong as prices have soared and rental yields are compressed because of excess liquidity that has spilled over from China, CEO for Asia Pacific real estate Ian Hally told Reuters in an interview at the Reuters Global Real Estate and Infrastructure Summit on Tuesday.
"In markets like Japan and Australia, a lot of local investors are not particularly active. The competition in acquiring assets is not as strong as in the past, and there's an opportunity to enter and build an exposure to these markets," he said.
Property consultants Jones Lang LaSalle said in a recent report that while the global real estate markets appear unsettled due to concerns over Europe's sovereign debt crisis and potential overheating in China, there were some "hot spots" investors could consider.
For instance, cities such as Shanghai, Hong Kong and Sydney began to see office rental growth in the first three months of 2010, while places such as Tokyo and Singapore were near the bottom of the rental cycle and poised for recovery.
Hally, who manages over $1 billion in investments, a large part of it in physical real estate, said he is focused on the developed Asian markets of Japan, Australia, Hong Kong and Singapore, but will expand into China in the medium term as Aviva Investors adds staff and raises assets under management.
The investment arm of Aviva said earlier this year it planned to boost its Asian operations by hiring staff for its regional office in Singapore and adding sales offices in Japan and the Middle East.
Hally said that in Australia, he preferred Sydney and Melbourne as both had diverse economies and were less reliant on a particular sector unlike Perth, which depended a lot on commodities.
Office rents in both markets have stabilized and will begin to recover as Australia's economy remained resilient amid an uncertain global environment, he said, adding that rental yields in Melbourne could be as high as 6-10 percent depending on the age and quality of the building and location.
"In Japan, the real focus is on Tokyo," he said, noting that the Japanese capital had a growing population unlike other parts of the country and its office sector catered to a good mix of banks, corporate headquarters and many other services.
"As the Japanese economy starts to stabilize and grow, rents and property values will also improve," Hally said at the Reuters Summit, held at the Reuters office in Singapore.
Hally said there were selected opportunities available in Singapore but he was cautious about Hong Kong because yields had been driven down because "a lot of liquidity has spilled over from China."
(For more on global real estate markets, see www.reutersrealestate.com)
(For more on the Reuters Global Real Estate and Infrastructure Summit, see <ID: nLDE65D1GV>)
Reporting by Kevin Lim; Editing by Sharon Lindores