Savills Investment Management is part of a UK property firm founded more than 150 years ago, so it may have given the market a surprise in January when the asset management arm of the London firm announced that its global CEO would be relocating to Hong Kong.
Justin O’Connor, who is taking on the role of head of Asia Pacific for Savills Investment in addition to his roles as chairman and global CEO is due to relocate permanently to Hong Kong in August, as the manager of more than $18 billion in global assets looks to China’s growing market to help expand its war chest.
With around $2 billion in assets under management in Asia — more than half of which are in Japan — O’Connor explained to Mingtiandi in an interview that his company is looking at China’s third and fourth tier cities for the opportunities that will help it build these Asia holdings to $5 billion in the next few years.
SIM Sees Opportunities in Lower Tier Cities
While many foreign players opt to play it safe by sticking to Beijing, Shanghai and other first-tier cities when venturing into the Chinese market, O’Connor said SIM is looking for opportunities to enter joint ventures opportunities with local investors for projects in fast-growing third- and fourth-tier cities as well.
“We don’t see necessarily opportunities only being restricted in [first-tier cities], in fact I think there are really good opportunities in tier-three, tier-four cities. For example you can do greenfield development there.”
Aiming for a Local Fund Management License
China’s strict controls on capital outflows, which limit many investors to domestic opportunities, also provide opportunities to the UK company, according to O’Connor, as Savills Investment aims to join a short list of international asset managers licensed to raise funds locally.
Already, Aberdeen Standard Investments, Fidelity International, UBS Asset Management, BlackRock and Schroders are among the foreign asset managers to have won licenses from the Asset Management Association of China to offer onshore investment products including equity and debt investments in domestic projects to high-net-worth individuals and institutions.
With China’s government recently showing determination to bring down corporate debt levels, O’Connor sees his firm’s expertise in real estate projects giving it an edge in equity investments.
“With the deleveraging of China’s economy, a lot of the asset management companies are less inclined to be doing debt products. They would be doing equity products. Equity products actually require them to be hands-on doing the work. A lot of asset management companies don’t have their internal or in-house expertise or resources, so this will be where we come in.”
Taking an Interest in Retail Projects
The 30-year industry veteran sees particular promise in China’s retail sector, in part because of Savills Investment’s experience with shopping centre projects.
“We do a lot of retail so we have expertise,” O’Connor said. “There have been a lot of developments which may not have been positioned very well from the beginning. For example, the tenant mix is wrong so that they need somebody who can go in and fix it. It’s not just about building a shopping centre and leasing it up.”
The company does not see the $1.1 trillion ecommerce industry as a threat to physical retail in China. “You have to understand who you are leasing to, why and so on. You have to think about how is that affecting retail, given the impact of ecommerce, how are you going to reposition your shopping malls.”
Expanding The China Team
Savills Investment got its first foothold in China in 2015 when it acquired Frankfurt-based SEB Asset Management, which had existing projects in both Hong Kong and on the mainland. However, since that acquisition the UK firm has yet to make any fresh deals in the world’s second-largest economy.
Currently having five people on its investment team in Shanghai, the company plans to hire more staff as its investment in China grows, said O’Connor.
Despite the new home address for its global chairman, the UK firm will keep its headquarters in London, while looking to ramp up its Asia transactions. Savills Investment has done four transactions in Asia this year to date, with three in Japan and one in Australia. Last year, the company had 13 transactions in the region, of which 12 were in Japan and one in Australia.
The property investment manager has grown from eight offices and 4.2 billion euros of assets under management in 2013 to 18 offices, of which five in Asia.