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The Development Bureau of the HKSAR Government recently announced a pilot scheme which standardizes land premium calculations for old industrial buildings undergoing redevelopment to other specific uses. We welcome the new scheme as it provides clarity for investment decisions, significant time and cost savings, and encourages more efficient land use to address social needs. Old industrial buildings that sits on Residential or Comprehensive Development Area (CDA) zoning will be most sought after following the implementation of the scheme.

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Return of institutional capital and increasing industrial investment deals

Institutional investors and real estate funds sped up their hunt for industrial assets. In fact, among the aforesaid HKD1.9 billion transactions, all were acquired by funds or institutional investors. In January 2021, Kailong, a fund manager active in Greater China, acquired Hang Fat Industrial Building near Lai Chi Kok station. This property is expected to be redeveloped into a new industrial office building3 . Another pan-Asian fund manager, SilkRoad, also purchased Smile Centre near Fanling station, which is currently leased for logistics use. Meanwhile, Goodman purchased ground floor to fourth floor of Seapower Industrial Centre in Kwun Tong, with cold storage facilities, for HKD570 million (USD 73.5 million).

Looking into 2021, we believe institutional capital and funds will become more active again, given the pent-up acquisition requirements that have piled up over the last 18 months due to the market uncertainties, which now seem to be easing. Compared to the retail and office sector, industrial properties demonstrated a high level of resilience and stability in terms of rents and capital values. Meanwhile, the industrial Revitalisation Scheme 2.0 also presented investors with redevelopment opportunities, and some investors are eyeing the relaxed plot ratio restrictions to improve the return on their investments with higher floor area ratios.

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Rajah & Tann’s Sustainability Practice brings to you the inaugural issue of the Sustainability Updates which shares with you insights distilled from conversations between our Sustainability Partners and experts across sectors and domains on key environmental, social and governance (“ESG”) developments and trends. In this issue, Lee Weilin and Soh Lip San, our Partners with the Sustainability Practice, explore ESG issues in infrastructure projects by speaking with Seth Tan, Executive Director of Infrastructure Asia (“InfraAsia”), on his views on green and sustainable infrastructure and ESG factors for bankable projects in the region.

Rajah & Tann’s Sustainability Practice brings to you the inaugural issue of the Sustainability Updates which shares with you insights distilled from conversations between our Sustainability Partners and experts across sectors and domains on key environmental, social and governance (“ESG”) developments and trends. In this issue, Lee Weilin and Soh Lip San, our Partners with the Sustainability Practice, explore ESG issues in infrastructure projects by speaking with Seth Tan, Executive Director of Infrastructure Asia (“InfraAsia”), on his views on green and sustainable infrastructure and ESG factors for bankable projects in the region.

To read the article in PDF, please click below

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APREA advocates the adoption of ESG and Sustainability Best Practices in the real assets industry. Making sustainable investment decisions is increasingly a part of APREA members’ DNA, and APREA is committed to be at the forefront of that transition to a net-zero world.

APREA advocates the adoption of ESG and Sustainability Best Practices in the real assets industry. Making sustainable investment decisions is increasingly a part of APREA members’ DNA, and APREA is committed to be at the forefront of that transition to a net-zero world.

Recently, APREA together with its ESG and Sustainability Committee conducted an ESG Member Survey to find out real assets companies’ sentiments towards their implementation of ESG.

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Data centers: Critical infrastructure for the global economy: Growth opportunities and operational challenges for fund managers
White paper by SS&C

The world is awash in data. By some estimates, humans generate 2.5 quintillion bytes of data every day. The volume of data in the world reportedly doubles every two years, and an estimated 90% of the world’s existing data was generated just in the past two years.

All that data needs places to live and work, which helps explain the rapid proliferation of data centers globally. At the end of 2019, there were more than 500 “hyperscale” data centers around the world, according to analyst firm Synergy Research, and the number continues to climb. Real estate services firm JLL estimates that, as of mid-2020, there were 63.4 million feet of data center square footage globally, and another 4.3 million under construction.

SS&C helps clients manage their investments by streamlining operations, reducing risk and improving client experiences and increased visibility. With over 500 Real Assets and Private Equity clients globally, representing over $754B in aets under administration, SS&C brings experience in servicing open and closed end real estate, infrastructure, hard asset, debt and hybrid funds, specializing in complex fund administration, middle-office & data services and virtual data room. Our technology enables and secures the flow of information, empowering our customers to work more productively and with complete confidence. We host the largest community of GPs and LPs anywhere with 240,000+ individuals, from 57,000+ endowments, foundations, pensions, consultants and advisors using Intralinks.

To Download the full white paper click below.

DOWNLOAD HERE

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Whatever happens, real estate investors need to be innovative and adaptable, forming investment strategies which align with these structural changes.

COVID-19 has plunged the world into one of the most uncertain periods on record. Gold has hit record highs, equity volatility is elevated and government bond yields around the world remain low. Yet against this backdrop, we predict that real estate investment will remain attractive, thanks to lower volatility than other asset classes, a history of strong returns through longer-term direct investment, and, crucially, its ability to generate income in a world where 60% of bond yields globally are below 1%1 and over $14 trillion have negative yields.

For the service sector, a greater domestic workforce of support staff will offer renewed demand for office space. Localised employment growth in manufacturing, storage and service sectors will also enhance demand for other types of real estate, including residential and healthcare. There will also be indirect opportunities for international real estate investment. As an alternative to increased localisation, cross-border property investment offers global diversification and more options to meet revenue targets.

Nationalism and the advent of trade wars were already on the ascendency, but recent disruptions to business continuity, and overseas travel caused by the pandemic will only accelerate this trend. This has prompted discussions of reshoring (bringing foreign operations back home), onshoring (bringing supply chains within national borders) and nearshoring (bringing operations closer to home). Some types of real estate will thrive as a result. The logistics sector is seeing additional occupational requirements, which have translated into an even stronger investment demand.

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This presents many opportunities for readers of The Wealth Report, whether it’s the investment potential of the global demographic trend towards longer, healthier lives – explored in detail in our Big Interview on page 10 – or the ability of forward-thinking property investors and landlords to capitalise on demand for “healthy” workspaces that boost productivity, which we discuss on page 76. In parallel with this, “giving something back” is increasingly important to the UHNWI community, and on page 86 we profile three fascinating philanthropists whose work benefits a diverse range of causes.

A central pillar of The Wealth Report, the results of our proprietary Wealth Sizing Model – unveiled on page 18 – reveal that wealth continues to be created around the world, especially in Asia’s economic hubs. This growth in private capital is having a noticeable impact on real estate markets globally.

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Prime retail markets were severely disrupted by the pandemic with rental movements from -41.6% (Jakarta) to +2.6% (Guangzhou). In Jakarta, with strict social distancing measures and restrictions on mall opening hours, landlords were pressured to provide rental relief, and many of them slashed rents by half. In China, retail footfall recovered, and rents increased by 2.6% and 0.5% in Guangzhou, Shanghai, while softening by 2.8% and 1.5% in Beijing and Shenzhen. Vietnam’s retail markets were resilient with total retail sales of goods and services up 5.6% QoQ in Q4/2020. Rents in Ho Chi Minh City and Hanoi increased by 2.1% and 0.1% respectively. 

The logistics market has proven to be highly resilient and will remain a key focus in the region, with rental movements ranging from -0.4% (Shanghai) to +7.3% (Singapore). The pandemic accelerated a shift to online retail, and logistics assets were the major beneficiary. In Singapore, most warehouses are at capacity and some spillover demand has been seen in traditional factory space. In China, driven by rising domestic consumption and e-commerce, demand for modern logistics facilities is expanding rapidly. Beijing (+0.7%), Shanghai (-0.4%), Shenzhen (+2.4%) and Guangzhou (+3.0%) all entered an early upswing.

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Hong Kong Island Grade-A office leasing demand remained soft in December amid weak economic conditions and the traditional offseason, but the overall market was buoyed by the professional sector, particularly the finance and legal service industries, which took up space in premium buildings in the CBD area. Two Chinese Mainland financial companies, the Bank of Dongguan and FountainVest Partners, leased an entire floor in Two IFC, which was previously occupied by Nomura Holdings. Medical companies also expanded their footprint in the core districts. A medical centre leased the entire top floor of 9 Queen’s Road Central to meet the increasing demand for healthcare and wellbeing. Given the weak economic situation, some tenants gave up more office space. With the current high vacancy rate of 7.8% on Hong Kong Island, we expect some landlords to soften their approach and be more willing to negotiate.

Kowloon Leasing activity in Kowloon continued to slow down in December. New lease transactions dropped by 20% on a monthly basis. Most of the leasing activity was in Kowloon East, at monthly rents below HK$25 per sq ft. While most industries have been largely affected by the COVID-19 pandemic, the logistics industry has remained strong and is one of the winners. Some logistics companies have taken advantage of this golden opportunity in the downbeat market to expand and upgrade their work environment and location. A recent notable example was the relocation of logistics giant DHL. It moved out of Megabox and took up a 91,015 sq ft space in the premium Grade A office International Trade Tower in Kwun Tong, making it the largest new lease acquisition in the market so far in 2020.After reviewing its office requirements, DHL chose to reconfigure its work pattern and adopt agile work practices to achieve workplace size optimisation. Curtailed by the pandemic and economic uncertainty, tenants will continue to be cost-sensitive and seek cost-effective options in Kowloon. Given the approach of the traditional festive season and the continuing unstable COVID-19 situation, we expect leasing demand to remain soft and the current low-level leasing volume to last until at least Lunar New Year.

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