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Overview

Conducive global developments placed financial markets on a risk-on mode in the final month of 2020. The prospect of widely available coronavirus vaccines, the US bipartisan agreement on fiscal stimulus, and the EU-UK post-Brexit trade agreement’s conclusion provided the necessary fillip to sentiment, sustaining momentum for real estate stocks to conclude on a positive note. However, for the whole of 2020, real estate stocks continued to lag the wider equity markets, which have been supported by tech and pharma counters. Property cycles will eventually chart its own way out of the crisis, which although historically lags an economic recovery, will be longer-lived, sustained by the region’s enduring structural fundamentals.

Overview

Conducive global developments placed financial markets on a risk-on mode in the final month of 2020. The prospect of widely available coronavirus vaccines, the US bipartisan agreement on fiscal stimulus, and the EU-UK post-Brexit trade agreement’s conclusion provided the necessary fillip to sentiment, sustaining momentum for real estate stocks to conclude on a positive note. However, for the whole of 2020, real estate stocks continued to lag the wider equity markets, which have been supported by tech and pharma counters. Property cycles will eventually chart its own way out of the crisis, which although historically lags an economic recovery, will be longer-lived, sustained by the region’s enduring structural fundamentals.

Listed Real Estate

The GPR/APREA Listed Real Estate Composite returned 1.6% in December, underperforming both the region’s equity and REIT markets, as the tepid performances in China and Hong Kong weighed on the sector. Among the region’s heavyweights, property stocks in China and Hong Kong posted the largest declines on an annual basis as policy risks amplified the drag on valuations. In addition to the so-called “three red line” limits on developers, Mainland regulators made further moves to cap bank loans to the property sector, including curbs on mortgage lending, which will inadvertently subdue home purchases.

REITs

In contrast, Asia Pacific REITs, as tracked by the GPR/APREA Composite REIT Index, advanced over 5% in December with broad-based gains. Still, this could not lift Asia Pacific REITs into growth territory for 2020.

Notably, rotation towards higher risk segments propelled Retail to rise by 6.5% in December. On an annual basis, Hotel REITs suffered the biggest contraction, shedding 21.1% for the whole of 2020. This is in contrast with Industrial’s strong performance, which chalked up over 20% in gains in the same period as investors sought safety in logistics and digital assets.

Gains in December were broadly positive across countries, with Thailand an exception, as a resurgence in infections depressed sentiment. Despite experiencing a similar surge in cases, J-REITs still managed to carve out gains. The government has announced fresh stimulus measures amounting to JPY73.6 trillion in December, signaling a resolve to pull the country out of its coronavirus crisis-induced slump. This follows the over JPY200 trillion budgeted from two previous packages.

Meanwhile, South Korea is emerging to be a growth catalyst for REITs in the region. ESR Cayman Limited announced the successful stock exchange listing of ESR Kendall Square REIT on the KOSPI on 23 December 2020, marking the first publicly listed institutional quality logistics asset focused REIT in South Korea.

Following the latest quarterly rebalancing of the GPR/APREA index series, 11 REITs were added, including debutants on the Indian and the Philippine bourse. Representation in the Industrial sector also expanded.

Outlook

Monetary policies are expected to remain accommodative to prop up economic activity weakened by the pandemic. This has historically fueled REIT valuations. As the world continues it vaccine rollout, more upside potential in the region’s retail and office sectors is expected, along with the prospects for the re-opening of borders. However, the emergence of mutated strains, which adds a new dynamic to the uncertainty, is likely to rein in expectations. This will continue to fuel gains in the “anti-pandemic” Industrial REITs, which have served as portfolio hedges.

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Investors seeking yield will turn further toward real estate assets, while funds promising higher returns will be pushed up the risk curve

Lower for longer. Almost the entire way through the post-Global Financial Crisis economic cycle, interest rate calls have been revised downwards, or expectations of higher interest rates pushed well into the future. With COVID-19, that future looks even further away, if – a big if, given the liquidity pumped into the system – inflation is kept in check.

What does this mean for real estate? Preqin’s Future of Alternatives forecast is that private real estate assets under management (AUM) will grow from $1.05tn in 2020 to $1.24tn in 2025 (Fig. 1). While lower than our CAGR forecast of 9.8% for all alternative AUM, the real estate AUM growth of 3.4% per year should be viewed in the context of a market hit by what will likely be a period of demand uncertainty for its two largest asset classes: retail and offices.

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While office rents continued to drop in the downbeat market, tenants seized the opportunity for better relocation options, resulting in high activity in the leasing market during the month. However, landlords further softened their approach and adopted a more realistic stance in negotiating leasing terms to secure tenants, so the majority of tenants tended to renew their leases. As a result, new take-up of Grade-A office space was at an exceptional low level during the month, particularly in the CBD area.

Amid the challenging economic environment,

While office rents continued to drop in the downbeat market, tenants seized the opportunity for better relocation options, resulting in high activity in the leasing market during the month. However, landlords further softened their approach and adopted a more realistic stance in negotiating leasing terms to secure tenants, so the majority of tenants tended to renew their leases. As a result, new take-up of Grade-A office space was at an exceptional low level during the month, particularly in the CBD area.

Amid the challenging economic environment, cost-competitiveness remains a pressing consideration for tenants. Going into 2021, we therefore expect to see a continuing decentralisation trend. We also foresee rising demand for co-working space, as more companies, especially small and medium-sized enterprises (SMEs), which have been heavily impacted by the coronavirus-induced recession to actively explore flexible leasing options.

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It has been over a month since Thailand announced the state of emergency to combat the coronavirus disease 2019 (COVID-19). The global pandemic has created disruptions to the Thai economy to the extent that the Bank of Thailand has had to revise the previous 2.8% GDP growth projection to a 5.3% contraction for 2020. We are seeing a variety of ways in which different organizations are responding to the crisis as part of the largest workplace experiment conducted to date. Some companies are…

It has been over a month since Thailand announced the state of emergency to combat the coronavirus disease 2019 (COVID-19). The global pandemic has created disruptions to the Thai economy to the extent that the Bank of Thailand has had to revise the previous 2.8% GDP growth projection to a 5.3% contraction for 2020. We are seeing a variety of ways in which different organizations are responding to the crisis as part of the largest workplace experiment conducted to date.

Some companies are shuffling their staff, rotating their employees between entering the office and working from home schedules. Others have their entire staff working from home. This has radically impacted the way in which both organizations and employees work, especially in a country with a relatively high level of resistance to prior changes in the workplace. It has also led to many questions and judgements on the long-term impact that COVID-19 will have on the office property market, including those that radically proclaim the demise of the office.

The following dynamics are what we at Knight Frank and Peoplespace Thailand believe will shape the workplace as a result of COVID-19. COVID-19 most likely will not completely revolutionize or cause the death of the office. While the pandemic will lead to greater scrutiny and change in some prior market behavior, its most profound impact will be to drive and accelerate trends that were already underway for many of the leading office market participants.

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“When virus-related restrictions ease, we expect to see the release of some pent-up demand, but this will reflect shifting preferences following the experience of the pandemic and extended working from home, with businesses all likely to take a different approach.”

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We entered 2020 with cautious optimism as Asia-Pacific property markets remained relatively healthy and the phase one trade deal was signed between the US and China. Then COVID-19 struck, throwing markets into turmoil, and with it, knocking many of our previous forecasts off-course. This year has been dominated by the pandemic, with activity and performance of the various real estate asset classes linked to just how they have been impacted by the virus. As this report highlights, geographies and property types have all been influenced by lockdowns, restrictions, and the ensuing economic weakness. However, as we now look towards 2021 and the potential recovery it may bring, here are six trends that give a sense of what lies ahead:

We entered 2020 with cautious optimism as Asia-Pacific property markets remained relatively healthy and the phase one trade deal was signed between the US and China. Then COVID-19 struck, throwing markets into turmoil, and with it, knocking many of our previous forecasts off-course. This year has been dominated by the pandemic, with activity and performance of the various real estate asset classes linked to just how they have been impacted by the virus. As this report highlights, geographies and property types have all been influenced by lockdowns, restrictions, and the ensuing economic weakness. However, as we now look towards 2021 and the potential recovery it may bring, here are six trends that give a sense of what lies ahead:

  1. Work-from-home experiment will leave a lasting impact
  2. Logistics driven by e-commerce and supply chain security
  3. Investors circling for distress may be disappointed
  4. Monetary policy to remain supportive of residential markets
  5. Real estate to contribute to the ‘Green Recovery
  6. US-China relations to continue to be important for the region
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Regional property stocks reversed two consecutive months of falls in November as successful trials of vaccines in development raised hopes for an end to the pandemic. As a Joe-Biden victory bred expectations of a more stable geopolitical environment, the world’s largest trade pact was also inked in November. Fifteen Asia-Pacific economies including those in the ASEAN bloc, Australia, China, Japan, South Korea and New Zealand committed to the Regional Comprehensive Economic Partnership, underscoring the significant role the accord could play in post-pandemic recovery efforts.

Regional property stocks reversed two consecutive months of falls in November as successful trials of vaccines in development raised hopes for an end to the pandemic. As a Joe-Biden victory bred expectations of a more stable geopolitical environment, the world’s largest trade pact was also inked in November. Fifteen Asia-Pacific economies including those in the ASEAN bloc, Australia, China, Japan, South Korea and New Zealand committed to the Regional Comprehensive Economic Partnership, underscoring the significant role the accord could play in post-pandemic recovery efforts.

 Listed Real Estate

The GPR/APREA Listed Real Estate Composite returned 11.4%, outperforming the region’s equities market. Property stocks across most of the region, particularly those in emerging Southeast Asia, rose. Thailand shrugged off continued civil unrest to post the region’s largest returns; those in Australia gained on easing lockdowns in the state of Victoria. Hong Kong and China also rode higher on upbeat data signaling continued recovery in the world’s second-largest economy, with consumer spending picking up steadily and industrial output rising faster than expected in October. The country’s central bank had in November pumped more liquidity into the financial system to maintain momentum.

REITs

Asia Pacific REITs, as tracked by the GPR/APREA Composite REIT Index, closed 9.7% higher. Similarly, the rebound was led by the sectors that had been hit the hardest by the pandemic.

Retail REITs clocked the highest gains, followed by those in Hospitality as both sectors are likely to benefit the most from the rollout of a vaccine. Office REITs also rose on the back of a rotation to economically sensitive stocks. Industrial REITs were notably left out of the rally.

Across much of the region’s bourses, REIT stocks posted double-digit gains. Thailand’s component stocks led the way, with its Retail and Hospitality REITs rebounding on a surge of optimism as the kingdom reopened its borders to all tourists through a 60-day travel visa. Easing lockdowns also lifted Retail REITs in Australia.

Outlook

Sustained recovery beyond the Industrial sector remains a prerequisite for a revival to pre-pandemic highs. While Retail and Hospitality will continue to retrace their pre-pandemic highs, the path is likely to remain uneven without clarity on a full return to normalcy. As euphoria over the progress of vaccine trials is gradually priced in, further direction will, in the interim, be focused on shorter term dynamics as investors remain skittish over the near-term outlook. Still, we expect the wave of vaccine-related optimism to remain sustained into December. The broadening recovery into riskier assets so far is signaling investors’ belief that if anything, the outlook is at least brighter. A stimulus deal in the US, currently stymied by political wrangling, and better-than-expected third quarter GDP growth figures in the region are sentiment drivers and could still shore up markets.

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  • Savills Tech Cities are important centres for tech in their region and venture capital (VC) investment hotspots. Vibrant cities in which to live and work, they are magnets for talent.
  • Wellness matters more than ever to both tech talent and business occupiers. Our Tech Lifestyle Cities have an edge here, with better air quality, access to greenspace and smaller footprints. Savills Digital Nomad Essentials Index highlights some of the factors that count to talent today.
  • In spite of 2020’s upheavals, the Tech Megacities continue to dominate VC investment, led by Beijing and San Francisco. Singapore has received a boost, benefiting in part from the US-China trade war.
  • A new raft of Rising Global Tech Contender cities are emerging, ranging from Detroit to Yokohama. Growth is fuelled by technological advances, government initiatives and cost advantages.
  • While many tech companies have adopted work from home strategies in the wake of the pandemic, their city centre offices and campuses, in which they have invested heavily, will remain important as places for staff to collaborate, to instil company culture, and to attract the best and brightest.
  • Out of town tech campuses have taken on a fresh relevance in a time of social distancing and newfound focus on health and wellbeing. We explore five examples with wellness at their core
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Based on our forecast model and insight from over 100 fund managers and 100 investors, we provide a detailed forecast of what the alternatives industry could look like in 2025. We analyze what the next five years hold for each asset class and region, explore changes underway in the investor universe, and identify the megatrends driving change in the industry.

We expect AUM growth in alternative assets to average 9.8% per year to 2025. Persistently low interest rates will attract investors of all types drawn to the promise of outperformance, diversification, and lower correlation with public markets. Among our key predictions, private equity will top $9tn in assets by 2025, and Asia’s AUM will grow at a world-beating CAGR of 25.2%. Our forecast is supported by our Future of Alternatives 2025 survey, in which 81% of investors said they expect to increase allocations to alternatives in the next five years.

Read the report for AUM forecasts, data-driven analysis, insights, and predictions. Some of them may surprise you…

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When COVID hit the world, the accompanying lockdowns brought the term Work(ing) From Home (WFH) from the margin to the mainstream. This sounded alarm bells around the world, from savvy investors like Warren Buff et to analysts and other market watchers, thinking that the age of the CBD office market is over. Those who believe that WFH will significantly reduce demand for office space have valid reasons but their concerns about demand have not been articulated considering the following:

When COVID hit the world, the accompanying lockdowns brought the term Work(ing) From Home (WFH) from the margin to the mainstream. This sounded alarm bells around the world, from savvy investors like Warren Buff et to analysts and other market watchers, thinking that the age of the CBD office market is over. Those who believe that WFH will significantly reduce demand for office space have valid reasons but their concerns about demand have not been articulated considering the following:

  1. The discrete nature of office leasing terms
  2. Time domain
  3. New demand

By not accounting for these factors, any analysis of the market is likely to fall short of the mark. Today, we will analyze the Singapore CBD Grade A Office market to look at how it may permutate over time after we adjoin these three extensions to the mainstream WFH belief that there will be a sharp climbdown in demand. From a list of permutations, we will input our prior probabilities as to which of these are likely to play out in future. This approach is in sharp contrast to providing a singular outcome after just one round of reasoning.

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