With 2021 hopefully delivering some much-needed economic recovery, it is a good time to consider the strengths of Asia-Pacific’s traditional real estate sectors – and the rising niches attracting attention. With the pace and size of events influencing the real estate industry, H2 could prove an exciting period for investors and asset managers.
The old guard…
Prime office assets have weathered the pandemic reasonably well, in part owing to the resilience of the underlying tenants from the banking, insurance and technology sectors, which were better equipped to adopt remote working. In comparison with Europe and North America, a higher percentage of office workers in Asia favor a full return to the office and office rentals appear to be stabilizing following declines across the region in the last year.
Sectors reliant on the movement of people and consumption habits, such as hotel and leisure, retail and entertainment, were hardest hit. Nevertheless, the sector still presents several opportunities for investors and asset managers.
While some investors reduce exposure, widening yields offer opportunity. This dynamic has probably contributed to robust transaction volumes being seen in H1 2021, particularly in China, Australia, and South Korea. The $1.4 billion portfolio sale of Chinese retail assets from ADIA to Brookfield is a notable transaction for a portfolio which has reportedly weathered the pandemic, underscoring the point that there are variations in the fates of assets depending on location and tenant mix.
The logistics sector is the clear ‘winner’ from the pandemic as e-commerce saw a dramatic increase. There is an immediate undersupply of assets and the market has seen hot competition, with many winning bids well in excess of quoted market values. This has resulted in yield compression, but the sentiment from asset managers we have spoken with is that there is still room for income growth and thus the premiums are justified – even if they occasionally raise eyebrows.
…and the upstarts
The ongoing need for covid-19 vaccines creates demand for specialist cold storage facilities, while supply chain disruptions also highlighted the importance of cold chain facilities for food security. Demand for self-storage solutions is on the rise, with many needing to free up space for home office setups and home-based learning.
Asia has led the world with the rise of data center assets steadily becoming an investment. The digital age has driven demand in Tier 1 markets such as Tokyo, Hong Kong, Singapore and Sydney, with increasing attention being paid to emerging markets such as India and China. The current trend is for the size and capacity of data centers to be increasing, with forecast demand stemming from continued corporate demand, planned government digital transformations and the advent of 5G.
ESG is not the hot topic in Asia-Pacific that it is in Europe. The global institutional investor community will drive the agenda, where some countries have yet to enact ESG disclosures that are broadly in line with global benchmarks such as GRI, SASB, the more recent TCFD and the EU’s SFDR. We see this presenting a real opportunity for members of the asset management community to take a lead.