Capital Markets

Key Forecasts and Outlook: Logistics & Industrial Market

•Across APAC, demand for logistics space has been supported by a long-run shift from physical to online retailing. COVID-19 has driven up e-commerce volumes sharply, while expansion in the cold chain sector and new infrastructure developments should boost demand further. •Most investors and developers already see logistics warehouses as a core asset class.
•With firm demand and limited supply in China’s Tier 1 cities, tenants and owners may have to seek space and opportunities in locations away from the main centres.
•Japan stands out as underserved by modern logistics stock, even though the small modern logistics clusters (e.g. Nagareyama/Kashiwa near Tokyo and Ibaraki City near Osaka) offer some of APAC’s largest and most advanced warehouses. The low availability of modern units means investors and developers can apply value-add strategies to older stock. It is increasingly common to demolish and rebuild.
•Australia has ample Grade A logistics stock, but it is tightly held and vacancy rates are well below their long-run averages. Investors should be willing to buy a portfolio of assets to achieve scale.
•In India, Mumbai and Delhi NCR have vacancy rates of 10-11%, but the other logistics clusters have vacancy of 15-30%. New supplying 2020 is modest in all markets except Delhi NCR.
•Singapore is one of the best-served Asian logistics markets, with a per capita Grade A stock on a GFA basis of 0.8 sqmetres(versus under 0.2 sqmetresin Osaka or South China). As a result, vacancy is 11.7% and we expect modest average annual five-year rent growth of 0.8%.
•Demand for cold chain delivery is soaring. Looking ahead, we expect that big purpose-built cold chain warehouses will be built near ports and transport hubs, while renovated cold chain warehouses will be located nearer cities for easy distribution. Occupiers and owners will find opportunities in both types.

During 2020, private-equity investments into the Indian real estate sector declined 23% from2019. At this juncture, investors are also eyeing alternate assets, as well as projects that require last-mile funding. Investment firms and global developers are undertaking development risks in India and constructing office parks.

> We recommend investors fund stalled projects in the final stages of construction. These projects mitigate risks as project approvals are already in place.

> We also recommend investors focus on logistics and datacenter assets to take advantage of the growth in these sectors by converting them into a Real estate investment Trust (REIT)offering.

Report highlights:

• Overall real estate investment sales in Singapore trebled quarter-on-quarter (QOQ) and doubled year-on-year (YOY) to S$14.4 billion (US$10.9 billion) in Q4 2020, mainly on a REIT merger.
  
• Residential investment sales in Q4 jumped 92.6% QOQ and 94.2% YOY, largely due to the revival of public and private land sales, including two collective sales.
• CapitaLand Mall Trust (CMT) acquires CapitaLand Commercial Trust (CCT’)’s six office and two mixed-use developments on their merger, which played a part in the surging of commercial investment sales in Q4, at 228% QOQ and 509% YOT to S$8.69 (US$6.57) billion.
• Industrial investments sales in Q4 saw a decline of 9.3% QOQ and 82.1% YOY, due to ESR REIT’s proposed merger with Sabana REIT falling through.

With more tech companies setting up hubs and a global economic recovery, investment sales volumes are looking to pick up further in 2021, as Singapore continues to remain a favourable investment destination.

Regional performance has been tepid due to the absence of big players, but some markets are showing signs of improvement.

• Contrary to industry beliefs, the region showed faint signs of a recovery during Q4/2020. The consensus of keeping travel bans and closed borders in place is shared by governments around the world. A few have engaged in bilateral travel green lanes but only very cautiously, with infections still rising daily and signs of mutant virus strains emerging. With the future of hospitality still in question, hotel transaction activity continues to be impaired.
• In Q4/2020, the APAC hotel investment market volume stood at US$976 million across 30 transactions, a decline of 81% compared with Q4/2019. The top three performing markets this quarter were India, Australia, and South Korea. These three represented 65% of the transactional dollar proportion.
• India led the region with only one high-profile hotel transaction valued at US$282 million, a 44% fall year-on-year (YoY).
• Besides Malaysia, Australia was the only other market in the region which saw a growth in hotel investment in the quarter under review. Australia reported five transactions with total volume of US$219 million, a 27% YoY increase.
• South Korea remained in the top three markets with a transaction volume valued at US$117 million across 12 deals, a 77% YoY fall from Q4/2019.

A Changed Landscape

The covid-19 pandemic will leave a lasting impression on the commercial real estate sector across Asia-Pacific. While it brought more pain to the already battered retail sector, it put more wind in the sails of the industrial sector via the flourishing e-commerce industry, as many business-to-customers (B2C) firms were forced to adapt quickly as lockdown and movement restrictions in many markets prompted a huge shift to inline retail activity. Much of these activity result in higher online retail sales growth and penetration across the region, regardless of market maturity. 

This is evident when we look at the growth rate of online retail penetration across a few selected key markets across the Asia-Pacific with online penetration rates rising an average 14%year-on-year over 2020. We do not expect this growth to abate over the near-term and penetration rates should grow further, potentially reaching the regional leaders such as the Chinese Mainland and South Korea. 

Cloud Computing, AI, and 5G Accelerate Growth of Data Center Development and Investment Around the World

Data Centers, once an afterthought for global enterprises, are now a cornerstone of the information economy, and well over $100 billion has poured into the asset class over the past decade, according to Cushman & Wakefield’s Global Data Center Market Comparison.

The Global Market Comparison is the first data center report of its kind, openly discussing and ranking top markets for site selection and investment. This study reveals the thought process that underpins all data center work on behalf of our clients at Cushman & Wakefield, providing a rigorous and analytical approach for maximum value.

This study evaluated 1,189 data centers around the world, utilizing a unique weighted methodology to rank 48 global markets and arrive at our Overall Top Ten External Link markets.

Market turnaround: Recovery could deliver 50% uplift in global investment in 2021

Colliers anticipates a 50% surge in investment activity in the 2nd half of 2021 as global real estate markets rebound

With investors sitting on substantial amounts of dry powder and looking to make up for lost ground, Colliers expects total investment activity to increase by up to 50% in 2021. Our Global Investor survey results highlight that 98% of investors across all regions aim to expand their portfolios this year, with around 60% looking to expand by more than 10%, including 23% who want to expand by 20% or more.

Acquisitions to pick up pace in Q2 as market challenges ease

The roll out of COVID-19 vaccines will have a very positive impact on markets and global geo-political stability, courtesy of a Brexit trade deal and a U.S. election result, provide much needed certainty. These factors will help drive market growth in 2021. Although a large proportion of investors are looking to get out of the blocks early and identify acquisitions in Q1, Colliers experts believe the rebound in activity will gain strength from Q2 onwards due to lingering uncertainty over travel in the first quarter.

Tier-1 city offices remain the asset of choice

Reports of the ‘death of the office’ appear premature, with offices remaining the primary asset target globally. The scale and liquidity of the office sector in major commercial hubs like New York, London and Sydney allows investors to readily transact, supporting core, core-plus and value-add strategies. Re-positioning office assets to meet health, sustainability and technical benchmarks is a clear investor priority, delivering value for the long term.

Despite the slowdown in real estate markets accelerating across most of the world into the second quarter of the year, acquisition trends in two key global cities, both in China, have turned positive. Global volumes started to wane around March this year, but the weakness in Asia Pacific had already been apparent for some time, as all of the region’s top 10 metros suffered double-digit declines in the first quarter. In contrast, more than half of the key metros in Europe and the U.S. recorded an increase in transaction activity, as economic shutdowns and travel restrictions were implemented later in the quarter.

The year to 31 December 2018 was characterised by a record level of overall activity of NZ$1,698.9m, an increase of $709.3m from 2017 ($989.6m) and significantly above the average of $870.2m since the first survey in 2003.

Mid-market investment activity continued to be strong in 2018 resulting in $245.0m in investments, albeit down from a high of $333.7m recorded in 2017. Divestment activity with disclosed deal values has increased to $100.8m in 2018 from $62.4m recorded in 2017.

Meanwhile, 2018 was a record year for VC activity. Investments have increased to $269.7m, with divestments decreasing in the period. Buy-out activity has continued, but at a lower level than the 2016 peak, with $579.0m of investments and $503.4 divestment activity

The EY Global Private Equity Divestment Study focuses on how PE should approach their exit strategies in a resilient yet volatile marketplace. The 2019 report is based on 100 interviews with global private equity executives. The survey was conducted between September and November 2018 by Acuris.

In the past 12 months, we have seen…

The EY Global Private Equity Divestment Study focuses on how PE should approach their exit strategies in a resilient yet volatile marketplace. The 2019 report is based on 100 interviews with global private equity executives. The survey was conducted between September and November 2018 by Acuris.

In the past 12 months, we have seen attractive valuations and competition for assets as private equity (PE) firms divest portfolio companies. After an extended period of elevated dealmaking, PE exits leveled off in 2018. However, by historical standards, exit activity remains high and many firms anticipate this strong pace to continue in 2019.