APREA ESG Guidebook for Real Assets in Asia Pacific
As the voice of sustainable investing in the Asia Pacific, APREA has developed the ESG Guidebook for Real Assets in Asia Pacific to raise awareness about ESG and guide our stakeholders in their journey to sustainability. We believe that capital allocated to real assets can play a meaningful role in the achievement of the sustainable development goals (SDGs), while leveraging growth opportunities in a manner that benefits all stakeholders.
We recognise that the ESG landscape continues to evolve, and this Guidebook lays out the basic foundation to integrate ESG and sustainability factors in how each of us conduct our businesses. Aside from providing a framework that can be used as a basis in establishing a systematic ESG approach, we have included practical ways to build and operationalise an ESG program with effective governance, as well as clear steps to engage and communicate with key stakeholders.
The Guidebook also features case studies among APREA members that illustrate various innovative approaches, that reflect their philosophy and investment styles, and thus, facilitating the exchange of best practices.
Next, Flex | Technology For The Next Generation Australian Office (essensys)
At a time when commercial occupancy rates across the country remain stubbornly low, the report delves into how Australian office worker expectations are changing in a digital-first, hybrid work environment and how this impacts their office attendance.
Next Flex | Technology for the next generation Australian office, which surveyed 1,000 office workers across the country, was launched by essensys, a leading global provider of software and technology for the commercial real estate industry, in partnership with Flexible Workspace Australia.
The report’s critical findings highlight a lack of adequate tech is a key factor in people deciding to work from home or an alternative third space, with more than four in five respondents (86%) reporting a disparity between the existing technology in their office and what they need to enable them to do their jobs efficiently.
Office: Macroeconomic headwinds and inflationary pressure weighed on office leasing activity in Q3 2022, pulling down net absorption by 11% q-o-q to 10.1 million sq. ft. NFA. Finance remained the main engine of leasing demand, with activity also seen from tech and co-working platforms. Rents increased by 0.4% q-o-q and 1.1% y-t-d.
Retail: Retail sales growth slowed as global recessionary fears continued to cloud consumer confidence. However, vacancy declined across the region along with the further easing of pandemic-related restrictions. Rents fell 1.8% y-o-y but posted a quarterly gain of 0.3% q-o-q.
Logistics: Leasing activity eased across Asia in Q3 2022, with markets including mainland China, Korea and India recording weaker demand. Leasing volume in the Pacific was weak compared with the same period of last year, owing to a further drop in availability. Rents grew by 1.4% in Q3 2022, a slightly slower rate than in the previous two quarters.
Investment: High interest rates continued to impair investment in major Asia Pacific markets, driving down commercial real estate investment volume by 20% y-o-y to US$27.3 billion. Acquisitions were driven by real estate funds, property companies, REITs, and institutional groups. Cross-border investment fell 1.0% y-o-y to US$8.0 billion.
Eye on ESG: Why the Asia Pacific Hotels sector needs to pay attention (CBRE)
The Covid-19 pandemic has accelerated the urgency for hotels and hospitality companies worldwide to act to protect the well-being of the planet, communities, employees and guests, leading to a sharper focus on environmental, social and governance (ESG) initiatives.
While still nascent, the Asia Pacific hotel industry’s commitment to ESG and sustainability initiatives is steadily increasing – a welcome development as the region has the highest concentration of hotel carbon emissions. Rising energy costs – which have increased significantly since the onset of the pandemic – as well as other factors such as the shift in guests’ preferences toward more sustainable tourism and green accommodation, and growing demand for disclosure around climate risk, are accelerating the industry’s focus on sustainability.
These developments are feeding into a trend that CBRE is observing in the hotels sector: green travellers want to stay in green hotels. With environmental consciousness coming to the fore, sustainable design will increasingly come into play, enhanced ESG practices will offer travellers places where they feel comfortable spending their time, and new investment opportunities will be created.
This report examines the key ESG trends shaping the Asia Pacific hotels sector, and explores the key actions that hotel companies, developers and investors can take to effectively integrate ESG initiatives into their business, operations and investment strategies.
With ESG taking on increased importance globally, the S (social) dimension of ESG has received considerable attention recently. This reflects the need to prioritise the health and well-being of staff and customers, as well as supply chain issues, and equity and diversity issues in the workplace. This article highlights these issues and the major initiatives in the S space now being actively implemented by the real estate industry in Australia and Asia.
Doing ESG Well
Importantly, the real estate industry has clearly recognised the importance of ESG in their activities. This mandate has moved on from “doing ESG” to “doing ESG well”. This sees the ESG agenda actively promoted by the professional organisations in the real estate industry in our area; this includes APREA, ANREV and the Property Council of Australia; check their websites for fuller details.
Specifically concerning the S dimension of ESG, this covers a range of social aspects needed for effective businesses today. This includes staffing aspects, concerning equity, diversity and inclusion issues such as gender equality and cultural diversity to address under-represented groups at all levels in the organisation (ie: staff, senior management, board), as well as staff turnover, retention and pay. Wellness and well-being have also been a focus, around issues such as safe workplaces and staff mental health (particularly during COVID). Many organisations have also developed supply chain codes of conduct, with aspects such as modern slavery issues and fair pay being critically important. This sees many real estate companies giving their historic performance metrics to show they are moving forward in the delivery of these S issues.
All of these S activities are important, as they now play a key role in real estate funds’ decisions on whether to invest in these real estate companies, as well as the real estate companies showing a strong commitment to ESG. This is essential for investors today as ESG takes on increased importance at all levels in our communities. Companies clearly face the risk of being excluded from these investment mandates if they do not actively address these ESG issues.
Examples and Best Practices
There are many examples in the real estate industry in Australia and Asia who are world leaders in ESG, as recognised by all of the ESG benchmarks from the various international ESG rating agencies. These real estate exemplars include Stockland, Dexus, Mirvac, GPT and Lendlease in Australia, and CDL and CapitaLand in Singapore. They produce highly informative annual ESG reports which are available on their websites, which clearly highlight how they deliver the S dimension in ESG, with many exciting examples and delivery metrics. I have only given a few examples here; many others are also actively involved in this area; check their websites for fuller details. All of these examples are relevant to both those well progressed in the ESG process and those only just starting out. They will give you lots of ideas on how you can achieve your ESG “best practice” mandate; particularly concerning the S dimension of ESG.
I recently did a report for Investment Property Forum in the UK regarding ESG benchmarks in real estate investment. Using 60 interviews with global leaders in ESG, it gave a fuller international context to ESG in real estate, as well as identifying the priorities and challenges for delivering ESG. There were some amazing examples globally. We found that generally Australia and Europe were the leaders, with Asia needing to catch-up in their delivery of ESG. Also read some of the excellent ESG reports produced by the leading real estate advisory groups (eg: CBRE, JLL); many have a strong Asia context and Asia case-studies.
As more real estate companies begin or expand their ESG journey, it is important to have benchmarks and “best practice” role models for what is being achieved. There are many examples in the real estate industry in Australia and Asia (indicated above) who are world leaders in the ESG space. I strongly recommend you review their ESG reports on their websites for a fuller understanding of what can be achieved by your company. Enjoy your ESG journey and your increased focus on the S issues in delivering your ESG mandate.
In future articles, I will drill into more specifics about how to effectively deliver your S agenda in ESG.
Professor Graeme Newell
Professor of Property Investment Western Sydney University ×
Professor Graeme Newell
Professor of Property Investment Western Sydney University
Professor Graeme Newell is Professor of Property Investment at Western Sydney University. He has over 40 years’ experience in property education and research, having received numerous research grants and his applied research has been published widely. Graeme has strong links to the property industry, both in Australia and internationally. He has been a member of APREA for many years and has done several research reports for APREA concerning Asia REITs, and the significance of real estate in Asian pension funds.
For REIT markets in the region, July’s rally lasted until the Jackson Hole meeting in August. The Fed reiterated its hawkish stance in its annual symposium, which sparked a selloff in the region’s markets. Geopolitical tensions also cast a pall on the region’s equities. Most central banks in the region continued to raise rates to keep pace with the Fed and rein in inflation; Thailand and Indonesia raised their respective policy rates for the first time in almost four years to join the list of central banks that are unwinding Covid-induced stimulus measures.
Omnichannel Retail and its Impact on Asia Pacific Real Estate (CBRE)
E-commerce has grown rapidly over the past five years, with expansion accelerating since the pandemic. Despite e-commerce penetration moderating from pandemic highs after restrictions were lifted, CBRE expects future growth in Asia Pacific to continue to outpace the rest of the world. Of the six key e-commerce drivers identified by CBRE, Asia Pacific possesses a distinct advantage in three: Urban population growth, adoption of digital wallets and a vibrant e-commerce ecosystem.
As the retail industry continues to evolve toward omnichannel, so too will the role and functions of physical stores. Retailers and landlords need to re-invent themselves to prepare for the evolution of retail and the rise of omnichannel.
The growth of e-commerce is also driving robust industrial & logistics property demand, although the supply pipeline is unlikely to meet future demand. Logistics occupiers are advised to explore build-to-suit developments and invest in the latest warehouse technologies.
Key highlights from this report include:
CBRE forecasts Asia Pacific’s e-commerce penetration rate to grow to 35% by 2026. However, e-commerce penetration will vary across different product categories.
Korea, mainland China, Indonesia, Australia and Taiwan are expected to be the five most penetrated e-commerce markets in Asia Pacific by 2026.
While physical stores will remain essential, the rise of omnichannel is prompting many traditional brick-and-mortar retailers to consider new formats and locations.
Over the next five years, 100 to 130 million sq. m. of additional dedicated
e-commerce logistics space will be required to support the growth of online sales in Asia Pacific.
This guide addresses how the developing issue of Business and Human Rights (BHR) affects property ownership and management industries. Addressing BHR is a way to strengthen cultures of respect, dignity and ethics within our member organizations and mitigate risk.
This Guide provides an overview of the key BHR concepts drawn from the United Nations Guiding Principles on Business and Human Rights (UNGPs) and the Organization for Economic Co-operation and Development Guidelines for Multinational Enterprises (OECD Guidelines). It then applies these concepts to property ownership and management before setting out how to incorporate BHR concerns into your operations. Finally, the appendices provide examples for due diligence and contractual provisions.
As the global economy continues to chart a path in the post-pandemic world, real estate investment has a new favourite buzzword – new economy assets. While the term arose with the advent of digital and internet technologies, amid surging inflation and rising interest rates, new economy assets have taken on a whole lot of significance.
So, what is so new about the new economy? A key dynamic is the integration of digital technologies that is overhauling old economy services and products, spurred innovative distribution channels and sparked new, high-growth industries that are plugged into the tech and science megatrends. Increasingly, digital transformation is shaping the way we live, work and play and the real estate sectors underpinning this megatrend is set for a multi-year upcycle.
Riding the digital wave
The evolution of industry with the rise of new technologies is certainly not new. Throughout history, innovation has hastened creative destruction and redefined the global economy, with mobile technologies and the rise of e-commerce at the centre of the digital age. While the shift was under way before the pandemic, the impact of social distancing has been significant. The need to stay connected during the outbreak fast-tracked digital adoption. Across industries, companies were compelled to employ communication and mobile technologies and pivot to tech-enabled services.
The transition has prompted the rise of asset classes that are more geared to the requirements of the digital landscape. From cell towers and data centres to logistics hubs that make online living possible, the saying that real estate houses the economy also holds true in the new digital era. It is simple yet compelling link: megatrends need real estate and the bigger the tech, the more infrastructure required. The impact of digital disruption, magnified, will continue reverberating beyond the pandemic and drive structurally higher levels of technology investment.
Asia Pacific remains well positioned to ride the digital wave. Already by far the largest market for retail e-commerce, the region, home to more than half of the world’s population has over 60% born after 1990 – digital natives that will drive the adoption of digital technologies. According to a survey by McKinsey, this was fast forwarded by four years by consumers in the Asia Pacific while those for businesses leapt by 10 during the pandemic, the highest globally.
A spectrum of investment opportunities
This has cast several alternative sectors in a new light, awaking investors to the potential that such assets hold. Healthcare and Life Sciences became prominent in the wake of the health crisis while demand for streaming content have attracted funds to develop film production studios. Still, although a major headline, new economy real estate is not just about technology. Primarily, it is about capturing the underlying trends that are now rippling across Asia Pacific and globally.
A case in point is the region’s living sector, which is at the forefront of such shifts. Rapid urbanization, ageing demographics and remote working are propelling the nascent living sectors – from Multifamily to Co-living and Assisted Living – into the mainstream and attracting massive institutional funds. As more people gravitate to cities, the need for the required infrastructure buildup has also created a spectrum of long-term investment opportunities. In a low-growth, inflationary environment that we are now saddled with in this new normal, Infrastructure is an ideal countercyclical given its potential to provide high, stable and inflation-linked returns.
The resilience of such sectors is visibly demonstrated in listed real estate. Healthcare, Industrial and Residential REITs, as tracked by the GPR/APREA REIT Composite, have sustained positive annualized returns over a three-year period while those in Office, Hospitality and Retail are in the red. Notably, Industrial REITs’ market capitalization have risen over 50% during the pandemic, and despite the recent correction, remain more than 30% higher than its pre-pandemic peak.
Rebalancing and future-proofing
This new real estate world order have also wrought changes to investment strategies. An important feature in the new economy is the emergence of digital leaders and the inter-dependence of value chains, which create significant network effects. That means achieving scale rapidly is critical for investors to capture a large portion of market share in a sector.
To access the opportunities thrown up in the new landscape, investors need speed with execution. This means a need to build heft rapidly. Across the region, real estate players have restructured and pursuing M&As to expand and remain relevant, with integrated asset and fund management arms that has created an end-to-end platform to develop and incubate real estate developments through to its injection into a public vehicle. REITs with stabilized portfolios of new economy assets in developed markets are now being targeted in mega deals.
The current economic environment is creating an urgent need for investors to rebalance and future proof their portfolios. New economy sectors sit at the crossroads of major demographic and economic shifts as well as technological trends, which are occurring in the region and visibly underserved by traditional real estate classes. Layering in climate change concerns adds a further dimension to the idea of new economy assets, expanding possibilities.
In a rising rate environment and surging inflationary pressures, identifying sectors that are structurally undersupplied with the right long term demand fundamentals which generates positive rental reversions will be crucial in sustaining real returns. On all counts, new economy real estate is a powerful thematic that checks these boxes. These compelling fundamentals, taking place in a region that could eventually host more than half of the world’s megacities, promises a massive investment opportunity in the very assets that will be critical in securing its future.
Sigrid Zialcita
CEO Asia Pacific Real Assets Association
Sigrid Zialcita
CEO Asia Pacific Real Assets Association
Sigrid is the Chief Executive Officer of Asia Pacific Real Assets Association (APREA). Based in Singapore, she is responsible for overseeing the strategic direction, initiatives and operations of the association across Asia Pacific. Under her leadership, APREA repositioned to an industry trade group focusing on real estate and infrastructure.
Prior to APREA, she served as Managing Director of Asia Pacific Research and Advisory Services of Cushman & Wakefield (C&W) from 2010 through 2018, where she was responsible for research, thought leadership, strategy formulation and client management.
A recognized expert in global economic, public policy and real estate issues, Sigrid is a frequent speaker at industry events. Her commentary on commercial and residential real estate markets is also regularly featured in a wide array of global publications, including the Wall Street Journal, Financial Times, Bloomberg, New York Times and Reuters. Additionally, she has made several television appearances on financial networks and radio such as CNBC, Bloomberg, CNN, National Public Radio and Channel News Asia.
The Asia Pacific logistics & industrial market continues to perform strongly, underpinned by strong fundamentals – though there is emerging evidence that growth is switching from the investment market to the occupier market.
Kemmu Kawai joined Longevity Partners Japan in September 2022 as the Country Director. Based in Tokyo, he oversees all operations and activities in Japan, the Asia-Pacific region and beyond. He brings him more than 16 years of experience in finance where he specialised in real estate and credit investments. Before joining Longevity Partners, he served as a Portfolio Manager at Norinchukin Bank and as Investment Manager at Center Point Development.
