Asia’s economic recovery could reverse the natural pecking order for real estate

2021 has started on a promising note for Asian real estate.

A series of reports over the past week forecast an investment rebound for the region. Real estate services firm JLL expects a new cycle will emerge in Asia-Pacific this year, with investment volumes increasing 15-20 percent. Fellow property services firm CBRE is equally bullish about forthcoming Asia dealflow, in part driven by at least $31 billion of assets expected to be brought to market between 2021 and 2022 due to the imminent expiry of several close-ended funds.

This optimism rests on strong post-pandemic economic growth in major Asian markets, including China, the epicenter of the covid-19 outbreak. As the first region to be ravaged by the health crisis, it is not surprising that it is also the first to reach a meaningful stage of recovery. Barring the occasional spike in cases, markets  like Singapore, Korea and Hong Kong have also been more successful in executing an effective covid management strategy, including limited lockdown measures, widespread testing and strict compliance with mask-wearing. Apart from India, the countries currently witnessing the highest number of covid-19 cases are all in North America and Europe, with the US recording 22 million.

This could spur changes in the global economic pecking order. As the UK-based Center for Economics and Business Research pointed out in its annual economic league table published in late December, one impact of the pandemic has been to “redistribute economic momentum between countries, with Asia doing best.” It believes the Chinese economy would now overtake the US in 2028, five years earlier than the initial forecast. The International Monetary Fund has also predicted China would be the only country to post positive a growth rate in 2020. And China’s relative outperformance at a macro level has trickled down to other countries and their real estate industries.

As “China’s economic engine keeps going and growing, it is feeding off into the rest of Asia,” a Singapore-based manager told PERE this week. The manager did not have to revise its underwriting projections for value-add assets in Singapore to factor in the covid-19 disruption. In fact, the net operating income of the fund’s portfolio – which includes mixed-use investments in Singapore and Hong Kong – increased 12 percent in 2020, reflecting strong rental fundamentals.

Indeed, according to data provider Real Capital Analytics, Asia-Pacific recorded the lowest drop in transaction volumes as of Q3 2020 among all regions, with a 17 percent year-on-year drop to $533 billion, including development deals. The Americas fared far worse, recording a 40 percent decline to $222 billion.

Last year’s bearish sentiment for stateside appears to have extended to 2021. The annual investor intentions survey published this week by industry bodies ANREV, INREV and PREA reveals the crisis led 22 percent of all the respondents to increase their planned investments in Asia-Pacific in 2021, higher than the US at 16 percent and Europe at 13 percent.

The speed of the vaccine roll-out could again alter the relative investment appetite for each region as the year progresses. But as it starts, it is events in Asia that are driving positive investment sentiments and the complexion of post-pandemic capital flows into private real estate.

Email the author akhullar@peimedia.com