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Real Estate

APAC Investment Trends - Stay Ahead of the Game in 2022

December 15, 2021

Anshul Jain (Managing Director, India & SE Asia, Cushman & Wakefield) discussed about the APAC Investments Trends with his industry peers and discussion co-chairs: Adam Pillay (Senior Managing Director, Greystar), Bernhard Karas (Head, Private Capital Markets, CapitaLand Limited), Herbin Koh (Director, Head of Growth Equity Platform, Gaw Capital Partners), Mike Pyke (Head of Institutional Capital, Moelis Australia Asset Management). 

Real estate discussions have evolved from pre- and post-COVID to pre- and post-Delta to a stage of pre- Omicron recently. If the premise about the new variant not being as large and lethal holds true, real estate is expected to remain less impacted by the variant. In particular, Asian real estate has been relatively unperturbed by COVID in comparison to other regions with investments remaining strong. Overall GDP has bounced back quite significantly this year and is likely to maintain a healthy trend in 2022. 

Asia remained an attractive real estate investment destination with the first three quarters of 2021 being an indication of meeting or even surpassing the unprecedented level of fund flows in 2019. Industrial segment will be an interesting space to watch out for – investments scaling up from USD 22 bn in 2019 to USD 35 bn in the first three quarters of 2021. Office demand for the full year in 2021 is expected to reach 59 msf, which is 94% above 2020 levels (~30 msf) despite much of the region re-entering prolonged lockdowns as the Delta variant emerged. Office demand is expected to increase further by 20 – 25% of these levels in 2022, reflective of a stronger recovery across the entire region.

In the sections below, we will discuss the outlook for key asset classes on investors’ radar and markets of focus in the APAC region.

Investors’ view on industrial & logistics and data centres

Both industrial & logistics and data centres are asset classes that are being looked at with keen interest by investors across the region. COVID-19 has been instrumental in lending an impetus to demand in these segments and that is only garnering more investor attention. Infact, data centres and industrial are two sectors where investors can overcome the general hesitance to allocate more capital towards China, given that US and European investors are nervous about investing in the country amidst the current uncertainty. An approach of associating with multiple operators rather than one is likely to yield better returns on investments, while leveraging on the scale of a market like China. India is another market that is seen very favorably for investments across the two segments with opportunities to fill supply gaps while benefitting from the size and scale of the market.

Investors’ view on multi-family segment

Multi-family is a burgeoning and much talked about asset class that is witnessing traction in Asian markets. Increasing home ownership costs in Asian cities is an important demand driver for this demographically driven asset class. The sector presents a long-term opportunity over the next 10 – 20 years in the APAC region with large cities and a huge young population that is growing at a faster rate compared to a lot of other geographies. The professionally managed and purpose-built segment has bright prospects in multiple markets. The competitively priced and transparent market of Japan presents good investment opportunities in this asset class. China remains a big opportunity for investors on account of its scale despite investors currently shying away from the country. Korea is another favorable market to explore from the perspective of multi-family. While multi-family may not be an easy concept for India, owing to factors including yields and land prices, the country is expected to see a huge proliferation of student housing over the next couple of years. The sector with its current opportunities as well as expectation of continued growth can be explored from the perspective of either building an asset or buying an existing property to generate value for investors.

Impact of increasing developer defaults in China real estate market 

The current situation of stress in China market is being seen with dual lens by investors. On one hand, it can be seen as uncertainty which may not be liked by investors and is leading to significant capital outflows from the country. On the other hand, this is also being viewed as an opportunity to operate and leverage from the scale of the market for long-term capital appreciation. The market has clear signals of a willingness for investor – asset owner engagements to negotiate the right prices for trade, though this may be for a limited time window. Some investors and segments have been a beneficiary of this situation with opportunities coming out of it, multi-family being one of those asset classes. Despite the uncertainty, Shanghai occupier market continues to remain strong with robust demand which may not be impacted much by developments in the country’s capital markets. The situation is also expected to result in resurgence of markets like Hong Kong and Singapore that are witnessing a flight by Chinese corporates. The default issue by large developers is expected to be carefully managed by the Chinese government prioritizing the best interests of the Chinese population. It is pertinent to note that investors will have to align their investment approach accordingly, while avoiding any undue risks. Investors are likely to keep a close watch at the developments and leverage on any opportunities to generate returns from the current crisis.

China+1 strategy is another fallout of the current situation with funds exploring thematic investments in the Greater China region (includes Hong Kong, Macau, Taiwan). Korea, Singapore and Japan are other Asian markets finding favor with investors exploring opportunities outside China.

View on Indian Capital market

Indian market, though perceived to be a little tough to navigate for medium-sized investors, continues to see strong investment inflows and interest by large institutional investors. The market that has evolved from being ‘residential focused’ in the pre-GFC period towards being more ‘office focused’ post-GFC has garnered interest from large sovereign and pension funds. A robust office segment that witnesses around 50% share of the office absorption in the APAC region has successfully drawn attention from large investors with the trend expected to continue post pandemic. Office real estate, which saw unprecedented demand in 2019, is likely to achieve a similar peak by 2023 despite the conversations of a hybrid work model. Student housing & co-living are other nascent sectors with good investment prospects in the Indian market, given its young population that is increasingly embracing managed space formats to rent accommodation.

View on Australian Capital market

The current level of interest rates is compelling investors to find yield for investments in the highly desirable Australian market, though smaller in size. Supply chain disruption caused by the pandemic is presenting interesting opportunities in logistics and cold storage segments, especially in gateway cities. Retail is another attractive asset class with the relative value seen in this segment in the Australian market.

Sustainability 

The subject of sustainability is gaining increasing importance in real estate investments, and various leading firms are setting their own sustainability targets. Coming at the forefront of investors’ minds who are instrumental in driving interest in this area, sustainability highlights an approach to look at assets differently. Investors are seeing merit in leveraging real estate investments through a green premium. Institutional investors have started embedding sustainability into their due diligence processes and aim to be cognizant of the sustainability initiatives for an investment product. 

ESG is a complex topic with a long road to be covered for a deeper understanding by all stakeholders. ‘E’ of ESG is relatively easier to manage and resolve with quantifiable measures of elements including energy saving and carbon neutrality. It is pertinent to focus on ‘S’ of ESG which is a challenge area with respect to measurement of social benefits. Catering to this ‘S’ part can make real estate a lot more attractive than it has ever been by using innovation in solving social problems without the need for a high capex spend. 

2022 – Favored picks on ‘One market’, ‘One asset class’

  • Office in Hong Kong
  • Multi-family in Australia
  • Retail in Australia
  • Office in Singapore
  • Private credit in Greater China
  • Data centres Pan-Asia
  • Office in India

Contacts

Anshul Jain
Anshul Jain
Managing Director, India & SE Asia
Cushman & Wakefield
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