“A decade into the economic cycle, investors are contending with macro risks and geopolitical uncertainty such as rising interest rates, continued trade tensions between the US and China, as well as strains in the EU caused by Brexit negotiations,” said Stuart Crow, Head of Capital Markets, JLL Asia Pacific.
“Against this backdrop, real estate continues to look attractive as a safe haven for investments, with its portfolio diversification benefits and relatively higher returns compared to other asset classes. However, in this late-cycle environment, investors are becoming more selective and disciplined in exiting investments because it’s getting harder to find income-producing alternatives.”
Dr Megan Walters, Head of JLL’s Asia Pacific Research unit, explained, “Despite the macro concerns, we believe that this region’s opportunities will mitigate the risks, spurring investors and occupiers to look into sectors that have defensive qualities or those that run on less cyclical demand drivers.”
In Asia-Pacific, real estate demand will continue to be driven by its strong demographic fundamentals. The region’s urban population is expected to exceed 400 million people by 2027, while the population aged 65 and above will rise by 146mn people within the next 10 years. By 2021, Asia-Pacific’s e-commerce market is projected to grow to US$1.6 trillion.
A release by JLL this week noted five key trends to shape the industry in Asia Pacific in 2019, as follows:
1. Growth in ‘living’ assets
The region’s increasing urban population has seen a growing demand for alternative residential arrangements, including student accommodation, co-living, multi-family, nursing homes and aged care.
For investors, these living sectors offer attractive yields and long-term growth prospects as well as an opportunity for portfolio diversification.
“These new sectors are set to outperform traditional residential assets given their efficient use of space, superior building management, and generally higher entry yields,” explained Mr Crow. “Aged care, for instance, offers returns of 11-14% in Tokyo, and 8-12% in Singapore.”
2. Building flexible spaces to attract talent
Businesses are increasingly using shared workspaces as a way to foster innovation among employees and win the war for talent. This renewed focus on building human experiences has led to an uptick in flexible offices – including coworking and serviced offices – across the region.
Dr Walters noted, “By 2030, flexible work spaces could comprise 30% of some corporate commercial property portfolios worldwide. This means that market consolidation will become more common – landlords and developers will start to create their own flexible space offerings, form joint ventures with coworking providers, or look at mergers and acquisitions among coworking brands.”
3. Rise of logistics and data centres
With Asia-Pacific leading global e-commerce adoption, there is rising pressure for organisations to establish their data storage infrastructure as well as warehousing facilities for physical retail goods.
“The robust rate of consumption is driving increasing investor interest into data centres and logistics in Asia Pacific,” said Mr Crow.
“These sectors will continue to expand, with significant capital targeting emerging markets like China, India and Indonesia. Meanwhile, logistics hubs in major cities are growing. As an example, the logistics market in Sydney increased seven-fold between 2015 and 2017.”
4. Shift towards debt exposure
With banks tightening their lending criteria, this leaves a gap for non-bank and offshore lenders to enter the market, particularly in Australia, India and China, according to Mr Crow. As a result, there is a spike in investors turning to global offshore lenders who provide flexible forms of either debt or equity on selected projects.
Likewise, institutional investors are also expanding their footprint into real estate debt.
“Debt investment is one way to curb risk in a portfolio and investors are increasingly looking at ways to use debt to shield them from market volatility and falling property incomes,” Mr Crow said.
5. Evolution of smart cities
With smart city initiatives pushing ahead in Singapore, Japan, South Korea and Australia, Asia-Pacific has seen an increasing need to build better digital infrastructures to maximise efficiency, sustainability and improve the living conditions for inhabitants.
Dr Walters explained: “Proptech – the convergence of real estate and technology – plays a key role in the future development of cities. As smart cities are highly data-driven, smart property development and management enable extensive data collection and analytics – both of which are crucial for cities to create more liveable environments for their growing populations.”