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Real Estate

Asian Rental Real Estate Markets: Changes, Opportunities and Challenges

14 MIN READ August 17, 2020
The rental real estate market was pretty optimistic at the beginning of 2020 with the stock market rallying and capital markets soaring, but only to be followed by CoVID19 reaching its peak in February, dampening the mood. During the last weeks of July, new COVID cases were being registered with higher numbers than what was reported back in April. 

The fear of a third or even fourth wave of infections has caused countries to take up lockdown measures making it more difficult to gauge the impact of the pandemic in the coming months. Hong Kong, Japan and Australia have re-imposed lockdown measures whereas Singapore has begun to ease out of them. With such uncertainty and volatility surrounding COVID-19, what has been the impact on rental real estate assets? 

Asian Cities’s Response to Prolonged Crisis

Today, more than 60% of the world’s population is situated in 30% of landmass in Asia, making it the most densely populated region with healthy population markets. 2020 data shows that Asia has the most expensive housing market with Hong Kong leading the charts, followed by Singapore at number 3, Shanghai (4), Shenzhen (5) and Beijing (6). 

The impact is varying across the geographies and asset classes, with millions of employment loss and governments struggling to align economic stimuli with biosecurity measures. Nevertheless, there are no signs of systematic distress in the APAC region yet, both the corporates and government are flushed with cash, low interest rates and public markets have come back strongly, there is monetary easing across the regions and for the large part the economies have opened up in the APAC region with certain pockets of rising COVID cases.

APAC’S New Trends

Boost in Logistics Demand

The current sentiment is that e-commerce is benefiting from the COVID pandemic, ensuing greater demand for logistics and warehousing assets. However, the market participants believe it is essential to slice and dice the situation to understand the demand drivers and whether the demand is B2B or B2C, as well as analyzing how to future proof the assets to align automations with the requirements of the tenants. 

Future Proofing Assets

GRI Club members believe that technology will play an essential role in future proofing real estate assets, for instance logistics and student housing. A trend that is developing in design due to COVID-19 is how people view the hardware integrated in assets. For instance, buildings will include touch sensors, ESG or wellness amenities. Health and safety are going to remain the priority going forward. 

Social Interaction: The Most Valued Amenity 

This pandemic has also brought to the table the concept of digital fatigue. People would rather socialize and have human interaction than digital drinks. Having a sense of community in residential premises has gained value as people realized the importance of it during the lockdowns.Going forward, the younger generations will gravitate towards rental accommodations that  provide the right facilities and proximity to public transport at the right price. For the developer, creating controlled social interaction spaces in residential assets is likely to gain importance. 

A Glance at Real Estate Asset Class Performance

Although there are many factors threatening the real estate market, it seems that there are no fundamental financial issues in the market yet. Good quality assets are attracting leases and investments in the low interest rates market. The real estate market is a cyclical market, which makes corrections welcoming regardless of the underlying cause with the markets likely to come back in the mid to long-term period. This is a demographically led sector and hence is likely to hold up better in terms of its resilience. 
  • The residential market is reasonably resilient and residential prices in Hong Kong depict this emotion. For the rest of the year, as the pain starts hitting the mainstream and impacting employment, the residential market is likely to soften. Nevertheless it is still too early to tell if there will be a long-term impact. Even if prices were to fall, it would not change the fact that some cities in the region are fundamentally expensive. 
  • The retail and hospitality sector have taken an immediate impact with negative sentiments surrounding the asset class. As for the student housing asset class it is also likely to see certain pain in the near future. Single city economies are likely to pose great hospitality opportunities, which make them attractive to investors in the field of repositioning the distress buys to long-term rental products. 
  • Logistics and data centres have defended themselves in the past months.  GRI Club members believe these are going to be the assets where funds are going to ploughed in with a growing pool of investors wishing to just invest in these defensive asset classes. 
  • When it comes to offices, the verdict is still unknown. It is currently seeing a wide range of numbers in terms of cap rates and pricing. Going forward, there could be a wider range of cap rates amongst different asset classes. 
  • Multifamily as an asset class has not really worked outside of Japan. However, there has been increased interest flowing in with the support of the government in China and Australia attracting investors who are familiar with the US and European markets in this asset class. Australia proves to be a good market for multifamily assets however with the punitive tax regimes it has not quite floated off. 

How have APAC’s Real Estate Markets Responded to the Crisis? 

Historically, big Asian cities such as Hong Kong and Singapore recover quickly and the mistake that an asset owner does not want to make now is to sell an asset too early or be the first one to panic. This has resulted in many to adopt a wait and watch approach. 

Rental absorption in the market has seen that most of the tenants are staying, specifically, in Japan and China. Singapore is a strong fundamental market in terms of supply and demand. Shanghai and Beijing are almost back to normal with markets being fairly insulated from the trade wars and there has been an uptick in consumption with the levels back to the 2019 levels. Hong Kong is likely to remain a 24x7 economy with the market facing certain pain. It is expected that the pain will only be for a matter of time and will ease out soon once  tourism and services come back. 


Prices in Japan have held extremely well with hardly any fluctuations. The ideologies and nuances that the Japanese home buyers have when they think about living are different from the other markets. Studio units are performing better than the double-room units and there is a higher focus on the proximity to the train station, rather than the flashiness of the buildings.Japan has a favorable demand supply dynamic, as developers continue to do business over a longer duration.


Australia’s rental absorption shows that the tenants are not expanding or moving, but are rather staying put and collection rates are remaining strong. What is going to happen in the next 12 months depends on how the COVID situation goes. 

There are reforms expected in the Australian markets. The supply levels in the cities are as low as 1963 levels, with the populations having increased 3x which has since then depicted an issue with the housing supply creating an affordability problem. The residential yields are very low and the market introduces different development risks. Regardless, the market is on an investors’ radar yet the when and how remains unanswered. While the participants believe that build-to-rent business plans should work in Australia, investors are looking to see a proof of concept and are waiting to reach the levels where it would be safe to comment if it is going to work or not. 


The prices have returned to pre-COVID levels with a few instances where the bids are for prices even higher than the pre-COVID levels. Until April the attention was focused on COVID, which has now shifted away to the trade wars.. This trend is also being seen across Asia where the focus is shifting away from COVID to understanding the outcome of the trade wars. 

Valuations and Forecasts Remain in Unknown Territory

It has not been a good year for real estate transactions and in the APAC region, the number of real estate transactions has dropped 50% in the 1Q20. Typically, private real estate valuations are determined by public valuation subjects to a lag of 2/3 quarters with the public valuation fairly volatile. Figuring out the future performance of the office and retail segment poses a challenge to valuers, on whether there will be structural changes or not. 

Valuers are reluctant to make wholesale changes to their forecasts, the 1Q and 2Q valuation impacts have been largely driven by fx fluctuations and the income impact of 2020. It does not seem that the impact of COVID has been completely understood by the valuers. It is safe to say that toward the end of the year, valuers are more likely to understand the true impact of the pandemic on assets and build it into their models.  

At first, the forecast was that the global economies were likely to shrink by 3%, however as the third and fourth wave of infections are expected to hit with continued lock-down measures, this forecast is likely to change. GRI Members are concerned that as unemployment rates continue to rise, the higher the structural changes will be seen on economies. 

What’s Next for APAC Real Estate Investors? 

Industry players are anticipating widespread distress situations, however some of the investors have continued to acquire assets. With travel restrictions in place, local investors are having an edge over the foreign investors. Having local offices has also become essential which helps getting a better outlook of the jurisdiction preventing knee-jerk reactions. 

Investors are finding different ways to carry out transactions by leveraging their local relationship and their trusted partner, but still with caution. Long-term institutional investors strongly believe that COVID-19 has just accelerated the macro trends, such as urbanization and digitization. This in fact has helped validate the long-term conviction for the region. 

The participants are focused on the downside protection as they foresee a challenge in securing the expected incomes over the next couple of months and looking at preferred equity structure or income guarantees, as well as diversification across geographies and asset classes.
Investors are focused on raising dry powders to have their gunships ready when the opportunity arises to allow them to close quicker and work with partners that need support. 

In terms of risk appetite from the perspective of GP focus is more with income generating assets and dialing down on the opportunistic assets and shifting to core assets. In the low interest rates and yields the investor sentiments have taken a step back. At this point, the investors are sharpening their pencils so to speak.

This is a summary of the eMeeting: COVID-19 impact on the Rental Market across APAC's most expensive CBD's which took place on August 5. Some of the participants of the discussion were: Jae Choi (ARA Asset Management), Adam Pillay (Greystar - Asia Pacific), Jason Lee (AEW Capital Management - Hong Kong), Rushabh Desai (Allianz Real Estate Asia-Pacific), and Sachin Doshi (Weave Living).

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