The latest installment of PERE’s largest conference, the PERE Asia Summit 2021, wrapped last week with a hybrid format featuring a line-up of virtual sessions on day one and an in-person event held in Hong Kong on day two. Over 250 delegates participated in the conference and they were keen to listen to private real estate’s top players in the region discuss how Asia’s property markets have evolved during the pandemic. Below are four salient themes from the region’s most-anticipated property event:
Staying active during covid
The Asian real estate market has not seen any significant dislocation during the pandemic, while fundraising activity has continued to pick up. “Cap rates have further tightened in spaces like logistics. You haven’t seen risk being dialed back and the most liquid markets are still amazingly busy despite travel restrictions here in Asia. If anything, folks are raising more capital,” said Peter Kim, managing director, Asia, at Canada’s QuadReal Property Group.
Jonathan E Umali, managing director at Arch Capital Management, believed distressed opportunities will be more likely to come out of emerging markets like Thailand and the Philippines, where the economic recovery has been slower. “In China, we may also see some distressed opportunities in the medium-term stemming from the pandemic and the reform,” he added, referring to the Chinese government’s effort to deleverage the country’s real estate industry.
Catching up with the US and Europe on ESG
Discussed on most panels was the topic of ESG, which has emerged as one of the top concerns in the Asian real estate market. The region is now catching up with the US and Europe in terms of ESG adoption in real estate. Umali pointed out that local governments and regulators have been playing a key role in pushing ESG initiatives in the region. For example, Singapore has mandated a city-wide Green Mark certification for buildings and single-use plastic will be banned in Hong Kong in the future.
“There is a cost to reducing carbon footprint. If your competitors are not doing it and you are doing it, then you are not justifying the return margin. I think it is good when the regulators are stepping in and pushing it along,” Umali said.
George Hongchoy, executive director and chief executive officer at Hong Kong’s Link Asset Management, also noted that the firm will focus on reducing single-use plastic across its portfolio in the coming year.
Cautious approach towards data centers
Data centers are at the forefront of many investors’ minds but most of them are still taking a cautious approach in the region. Kim said QuadReal is still taking a wait-and-see attitude in Asia’s data center space despite being a big investor globally. He pointed out that the equity outlay for a data center asset in Asia is typically around $500 million to $900 million. In addition, there are a limited number of tenants in China for hyperscale data centers as the market is dominated by local conglomerates Alibaba, Tencent, Baidu and JD.
“The concentration of capital and lack of diversification in terms of tenant profile has held us up in making an investment,” he said.
Claire Tang, co-chief investment officer, Asia-Pacific at LaSalle Investment Management, also noted that it is difficult to underwrite data centers from a hard asset perspective as investors will need to invest in both the property and the operating company for data centers in many markets here.
Worries about overseas investing
Rising global inflation was flagged as “one of the big topics” by Japan Post Bank’s head of real estate investment, Kazunari Yaguchi, during a virtual panel about investing in European real estate on day one of the conference. While Yaguchi believed the current inflationary trend would only be “transitory” and therefore not impact the firm as a long-term property investor, others considered rising prices to be a major concern in investing in real estate overseas.
Doyle Kim, managing director of real estate investment finance at Seoul-based Hana Financial Investment, said a lot of Korean capital is “really, really worried about inflation, especially for the core assets in the real estate markets.”
Investors from the region consequently are looking at how to structure their property investments in Europe going forward to better protect their assets against inflation, he added.