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Overview

Global capital markets rallied at the beginning of the year, riding on expectations of a global economic recovery; investors also cheered the swearing-in of US President Joe Biden and the implications of anticipated policy reversals that could arise from the new administration. However, financial markets faltered towards the end of January, ending with a mixed performance as new coronavirus variants and delays to vaccinations prompted caution. Real estate stocks in the region failed to hold on to the rally that started in November last year. However, Japan and Singapore-listed counters managed to buck the overall trend.

Listed Real Estate

The GPR/APREA Listed Real Estate Composite fell at the start of the new year, underperforming both the region’s equity and REIT markets. The declines were seen across the region’s bourses with those in the emerging markets hit particularly hard. Rising infection caseloads threw recovery prospects in doubt as stocks across the major markets in emerging Southeast Asia came under pressure with governments reverting to stricter measures. In Hong Kong, authorities also imposed the city’s first lockdown to battle another wave of infection. Meanwhile, investors became wary after monetary officials in China unexpectedly slowed liquidity injections, signaling a tightening bias as the country’s recovery from the pandemic gains firmer footing.

REITs

Asia Pacific REITs declined in the opening month of 2021 with a marginal 0.3% loss, dragged lower by Australian REITs which fell 4% in January. However, those in Japan and Singapore bucked the regional trend to post increases on the strength of its office and industrial listings. Office S-REITs reportedly remains well poised to capture regional expansion by Chinese tech giants with the likes of Lazada and its parent company, Alibaba, as well as ByteDance, which owns TikTok, expanding its office footprint on the island.

Brookfield India Real Estate Trust, backed by Canadian asset manager Brookfield Asset Management Inc., is seeking to raise as much as US$522 million in an Indian IPO, which is slated for a February debut. Brookfield’s REIT is the third REIT launched in under two year, as acceptance of the investment product gain momentum in the country. India has been seeking to attract more REIT IPOs in recent years by tweaking rules to make the vehicle more attractive for investors and developers.

Blackstone is also believed to be floating its logistics portfolio on the Australian stock exchange, according to newspaper articles. With a 45-asset portfolio across major Australian cities, the newly created Milestone Logistics is expected to raise more than A$1 billion if the IPO is pursued.

Outlook

Asia Pacific REITs could be set for a broader recovery this year, with the continued global economic recovery and low-interest-rate environment a positive for the asset class. However, the pace will remain uneven across sectors. Riding on long-term structural trends, Industrial REITs have emerged as safe-haven assets in a pandemic-ravaged year. This is likely to persist as the increasing prevalence of mutated COVID-19 virus strains could refuel demand in the sector, which we note has outperformed at the height of the pandemic. The fortunes of Office REITs will be bifurcated along with geographies, with those with exposure to the region’s tech hubs likely to outperform. While recovery in the Hospitality and Retail is likely to be more nuanced, vaccine optimism has fueled confidence and likely beneficiaries from a rotation to cyclical stocks. The uncertain course of the pandemic and the trajectory of the global economic recovery, in the meantime,  will likely induce more volatility in the short term and remain a huge sentiment driver. However, with continued progress in the development and more visibility on the horizon in the deployment of vaccines, there are reasons to believe that risks in 2021 are weighted on the upside.

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Real estate companies have ramped up their investment in technology in response to the COVID-19 pandemic, finds a survey of some of the biggest property players in Asia.

The survey by independent news source Mingtiandi, in collaboration with technology company Yardi Systems, finds 70 percent of real estate companies are scaling up their investment in property technology, or proptech.

Please click below to download the full report.

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Strata Office Market outlook

  •  In 2021, the strata office market together with the larger office sector in Singapore is expected to remain under pressure, with companies critically reviewing the way space is occupied in the post-pandemic era characterised by evolving remote work protocols. Therefore, transaction volumes as well as prices are likely to remain subdued for at least the first six months of the year.
  • Nevertheless, as office users rationalise and right-size their space requirements, occupiers such as small enterprises may turn towards owner-occupied strata offices as a viable alternative to tenanted space. As such demand for strata offices, especially those in central locations, could improve in the second half of 2021.

Strata Retail Market outlook

  • Moving forward, the global economic outlook remains uncertain with recurring infections in other nations despite the distribution of the vaccines. And even if vaccine distribution proves to be successful, prices of strata retail units in Singapore are envisaged to remain soft with more distressed sales expected due to the lack of tourists and safe distancing measures still in place.
  • The demand for such strata spaces is expected to come from proprietors that intend to run their own businesses, preferring to set up shop in locations where strata retail developments tend to be typically located. Often the lower costs when compared to renting retail space in a prime shopping mall in the same location act as the greatest incentive.
  • Thus, with the retail market gravitating towards more experiential placemaking strategies and migrating some of their services to digital platforms, there is a growing imperative for strata retail storeowners to also adopt similar ways to survive in a market that is in constant change.
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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.

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2020 was a challenging year for Philippine real estate and the global property market, but we see the new year as a promising time for sectors such as industrial & logistics, office, residential, REITs, and data centers, among others. The industrial & logistics sector was the most stable asset class in the past year, and there are huge opportunities in the e-commerce and the rollout of COVID-19 vaccines. The office sector is likely to perform better than 2020, while we anticipate residential real estate to exhibit a slow but gradual rebound.

In 2021, macrotrends such as the boom of e-commerce, flexible office setups, and continued decentralization outside Metro Manila
are likely to continue and contribute to the property market’s soft recovery.

The Philippine population, which has grown at 1.5% on average each year since 2015, is key to recovery. This growth has created a “demographic sweet spot” and continues to drive consumption and, in particular, the expansion of online retail and the related logistics platforms. The young Philippine population will also continue to keep the country at the forefront of the global BPO industry as outsourcing continues to increase.

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As the REIT regime has been expanding globally, corporate governance practices in emerging REIT markets have become a major concern for domestic and international investors alike. Idiosyncrasies stemming from the ownership models applied in Asian economies and the fact Asian REITs are often externally managed “captive entities” make issues pertaining to corporate governance of the listed real estate sector in Asia all the more important. To address these issues, the paper introduces an original framework that can be used to estimate the quality of corporate governance among externally managed Asian REITs. As a pilot study, the framework is applied to define a corporate governance index of REITs listed on the Singapore Stock Exchange (S-REITs). The index called R-Index enables the ranking of S-REITs’ corporate governance practices. It is then used to examine the relationship between corporate governance and the performance of S-REITs. The empirical tests based on several performance-related metrics provide evidence supporting a positive correlation between corporate governance practices identified in the R-Index and stock performances. However, we find no positive correlation with operating performance proxied by accounting measures. In other words, S-REITs with higher corporate governance tend to register better risk-adjusted returns but do not outperform operationally. To test for market efficiency, the study shows that S-REITs with the best corporate governance practices also have less information asymmetry.

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Global Economy

  • Global growth estimated to decline by 3.5% in 2020 but expected to rise by 5.5% in 2021
  • Advanced economies likely to grow by 4.3% in 2021 on the back of the early rollout of vaccines
  • Emerging economies are expected to grow by 6.3% in 2021 on the back of a contracted base

Indian Economy 

  • India’s GDP growth for FY21 is estimated to decline by 7.7%, hit by the global pandemic and the lockdown
  • Private consumption estimated to contract by 9.5% in FY21 based on income loss, mobility restrictions, and supply constraints
  • Government consumption estimated to rise by 5.8% due to increased expenditure as part of pandemic relief packages.
  • Investment estimated to decline by 14.5% due to economic uncertainty and delay in implementation of capital projects

Outlook 

  • Consumption indicators, including FMCG, auto sales, and GST collection indicate a faster demand recovery in Q3
  • Continued momentum post-pandemic in health, pharma, telecom, and technology (e-commerce, fintech, ed-tech, etc.) owing to a significant shift in consumption patterns
  • The pandemic has led to a preference for digital services and adoption of digitalisation in many companies
  • GDP is estimated to grow at 11% in FY22 owing to robust growth in consumption and investment and lower base effect
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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.

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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.

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Many institutional investors are facing their greatest challenges for many years. They are transforming their investment processes at high speed to reflect today’s imperatives, such as environmental, social and governance (ESG) investing, innovative technology, ever-shifting regulations and demands for greater transparency. Yet they must do this in a complex and unstable financial environment. I compare this challenge to changing the sails and masts of a ship as it is battered by a storm. For this report, we surveyed 200 asset owners (pension funds, insurers, sovereign wealth funds and endowments/foundations) owning assets of around $18 trillion. Reading it, I was struck by how the pandemic has further accelerated the shift to ESG. Asked for the top 3 trends that will affect their organization over the next three to five years, 62% cited either climate change or the increasing complexity of ESG measurement — far ahead of other themes such as market volatility and regulation. But it is not the only transformation. A new wave of data technologies is bringing very significant changes to investment processes. These technologies open the door to new ways of understanding markets and increasing efficiency.

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