Market Outlook

 
A megatrend that emerged from the last decade and continues to gain momentum is the pivot by investors to non-traditional forms of real estate. The onset of the pandemic has notably accelerated the focus on new economy assets, including those that provide vital infrastructure to the digital economy, such as data centers and logistics. Another powerful trend is the move towards ESG initiatives.

APREA took the opportunity to convene a panel of experts during the association’s annual Asia Pacific Market Outlook 2022 conference to explore how investors are leveraging on these shifts in their investments.

The World is Data Hungry

The increased digitalization of the global economy, driven by the rapid adoption of technologies such as cloud computing and data analytics, has increased the importance of data where it can be considered the lifeblood of the modern global economy. According to Equinix, Asia Pacific could generate up to 6,000 terabits of data per second by the middle of the decade. This will continue to drive demand for the vital pieces of infrastructure that facilitates this – data centers.

All three panelists agreed that data centers will continue to be built across the region. Patrick Boocock, Chief Executive Officer, Private Equity Alternative Assets, Real Assets at CapitaLand Investment, said “We purchased a portfolio of data centers in Europe and China, and we are currently developing two data centers in Korea. We have people looking at assets in every market as part of growing a broader data center platform as we see increasing demand for data in both developed markets and developing markets.” However, Ivy Min, Account Director, Alternative Investments at SS& C Intralinks, who moderated the discussion noted that investments have so far mainly been concentrated in the developed markets.

One reason for this is that, given the higher risks a developer would have to assume in growth markets, it is easier to build scale in the developed markets, said Tak Murata, Co-head of Asia Pacific Private Investing, Head of Asia Pacific Real Estate at Goldman Sachs Asset Management.

Another reason is that there remain significant opportunities in developed markets where supply continue to lag demand. Greater Tokyo, for example, is the world’s second-largest data center market after North Virginia, he added. Ambika Goel, a Managing Director in Blackstone’s Real Estate Group, agreed as she noted that even in Japan, the per capita supply of data centers is 60% below comparable cities.

Prospects in the emerging markets are also promising as there remains significant capacity headroom. Ambika noted that in India, there are about 500 megawatts of deployed data center capacity which is similar to the city of Las Vegas.

“It’s a function of underlying demand and in developing markets where you have a rising middle classes, everyone’s got a mobile phone and potentially a tablet, of course, the need for data centers is going to increase,” Patrick agreed.

More Structured Approach to ESG Agenda

With investors ploughing increasingly more funds into ESG-compliant investments, it is only right that they get what they are paying for. And it is not just about the environment. According to Bain & Co, the measurable impact of ESG will evolve to have a similar level of importance to financial return and risk. However, differing standards and regulations continue to present challenges

Ambika reveals that Blackstone has a structured approach to upholding transparency to investors and stakeholders. The firm, for example, has partnered with Schneider Electric to track its utility spend and carbon footprint, which is “definitely industry-leading”.

Patrick agreed as he noted that the view of investors is critical of what managers are doing to quantify, understand and address ESG issues on their assets. Now there’s far more discipline going into understanding and analyzing ESG implications on real assets, whether its infrastructure or real estate.

“Going forward, we are going to start seeing lots more robust Capex plans for the future to reduce the carbon footprint on the built environment,” he said.

Tak reminded that whilst the Environment component is important, the Social and Governance aspects also need to be addressed. These considerations are necessary to evoke change as the ESG the footprint of a company could reverberate beyond its corporate walls and extends across a company’s value chain as well as its various stakeholders.

“The impact that real estate properties have on the community is something that we think about and measure and try to implement,” he said.
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Net Zero a Major Investment Driver

As evidence mounts globally on the effects of climate change, investors in recent years are voluntarily embracing targets to reach net-zero emissions on their assets. Ivy noted that this could introduce investment opportunities for asset managers.

“We’re entering an interesting time across real estate and infrastructure. The world is committed to transitioning to net zero. Assets that are not part of the transition face the risk of obsolescence. CapitaLand Investment is looking at opportunities in renewables and continuing to feed and increase the use of renewable energy from our projects into our logistics and business parks,” Patrick said.

Ambika observed that in the US, occupiers are making the move into more multi-tenanted data centers to focus on access to renewables. She revealed that Blackstone’s data center platform in the US is looking to procure 100% of its power from renewable sources and looking to get green\ certification for 90% of the QTS portfolio, which the firm acquired last year.

All three panelists agreed that massive amounts of investments will be needed to transition the global economy to net zero, with close to US$10 trillion in the next decade; Ambika estimated that close to US$100 trillion is needed to power this to the middle of the century.

However, Tak opined that importantly is where such massive spending will be channeled into. He believes that some of these have to be made in more cutting-edge technologies to put the world through an energy shift, such as hydrogen fuels, to reverse climate change. That means taking more risks on projects. However, he is hopeful that the wave of investments could make such developments more viable.

“That’s another opportunity, where capital that is less financially driven could bring interesting ways to backstop some of these technologies and get it going. It’ll be interesting for us as alternative managers to put these together to bring the next energy shift to the world,” he said

Alternatives – A Good Hedge

Even as the world continues to forge a path toward endemic living and risks from the pandemic subsides, 2022 has opened with renewed threats, first from inflationary pressures and most recently, the Russian incursion into Ukraine. This weakens the economic recovery from the pandemic and heightens stagflation risks.

“This is just going to continually boost some of the current trends,” said Ambika, as she pointed out that the merits of investing in alternatives will be reinforced. She cited that just as what had occurred during the pandemic, the case for supply chain resilience will gain further traction.

“What’s happening globally is that we have to think about having more supply chain shocks in the future; Covid has seen that and I think the situation over Ukraine is another reminder,” she elaborated.

She revealed that Blackstone has committed over US$54 billion of equity to thematic investments, with about 70% of its portfolio in logistics, residential, and life sciences. Aside from these, Blackstone is also betting on the content creation industry. Last year, the firm acquired the Eclipse (formerly known as the Sandcrawler) building in Singapore, which counts Disney and Lucasfilm as tenants.

“This is where growth is far outpacing inflation and we think inflation is something to keep an eye on and we’re watching that as we make our investments,” she pointed out.

Tak agreed as he believes oil price volatility also heightens the case for and accelerates the move to renewables even further. Real estate will also continue to shine in the current environment given new economic trends and the abundance of capital.

“Real estate in terms of an inflation environment is a very interesting asset class; it gives you a bit more equity-like return but still maintains some fixed income-like nature as well,” he elaborated.

• Two years since the onset of the COVID-19 pandemic, there is light at the end of the tunnel for the Asia Pacific hotel sector as more markets across the region ease border restrictions in an attempt to reboot business and leisure travel.
• CBRE expects improvements in visitor arrivals and room occupancy to begin to emerge in Q2 2022, with Southeast Asian leisure markets set to outperform as tourists seek out open-air environments.
• Other key trends anticipated to emerge this year include consumers gravitating to trusted hotel brands, taking longer trips and placing a stronger emphasis on hotel ESG performance.
• This year will also see a further improvement in hotel investment volume as newcomers and experienced investors seek greater exposure, with the weight of capital chasing Asia Pacific hotels now at an all-time high.

This report was originally published in https://apacresearch.cbre.com/en/research-and-reports/Asia-Pacific-Hotel-Market-Outlook_Trends-to-Watch-in-2022

Read on for the full updates from APREA’s Q4 2021 Advocacy Bulletin, which includes the latest industry and regulatory developments from Hong Kong, China, India, and Singapore.

Following a strong recovery in office demand, reduced vacancies and growth in CBD Grade A office rents in 2021, the Singapore office market is expected to further pick up pace in 2022.

According to Cushman & Wakefield’s ‘Singapore Office Market Outlook 2022’ report, the projected economic growth of 3.6% in Singapore coupled with the positive economic outlook globally and regionally bode well for another robust office market this year, barring any unforeseen circumstances.

Pandemic restrictions and geopolitical worries did not hold back Asia Pacific real estate investors in 2021, which should mean that any further improvement will be greeted by more optimism.

The region’s real estate markets were remarkably resilient in 2021, with an estimated 30% rise in volumes compared with 2020, a record bounce back. Whether there are similar levels of activity ahead is dependent on how the pandemic develops and the response of policy makers.

Omicron has scared governments worldwide into clamping down on travel and trade, however markets have been less concerned about a variant that appears to cause milder symptoms. Higher vaccination rates (Asia is 50% fully vaccinated but some nations have more than 70% double-jabbed) and better treatments should encourage more countries to relax travel restrictions and ease social distancing.

There are reasons to be positive: Asia Pacific economies recovered lost GDP growth this year and will grow further in 2022, led by India (8.8%) and China (8.2%), although Hong Kong and Singapore forecasts (6.5% and 6.4% respectively) are also bullish. The weight of capital allocated to the region by private equity real estate funds suggests active deal making ahead. While a relatively benign inflationary environment suggests a modest interest rate rise.

Of course, there are risks, least of all around geopolitical tensions. The region’s economies are more integrated following recently negotiated trade agreements, and any tariffs changes or import restrictions will create a widespread negative impact.

If the same trends observed in 2021 persist then cross-border investors will remain focused on the larger, more liquid markets of Korea, Australia and Japan, while China’s investment levels, although high, will be driven by domestic buyers. For the international investor, Asia’s largest economy is beset by uncertainties over zero-Covid policies, debt bubbles and shifting government priorities. Hong Kong increasingly moves in sync with the Mainland. Singapore’s stability, however, should maintain its allure.

Industrial & logistics will continue to be the favoured sector, despite supply chain disruption. The sector has come to encompass a broader range of uses including manufacturing and storage, R&D, data centers, high-tech manufacturing, last mile delivery/urban logistics and temperature-controlled facilities.

Life sciences, flexible office space, senior housing and multifamily housing will remain popular. The prospects for the traditional offices, high end or tourism-related retail and hospitality are less certain. The pandemic, combined with advances in technology and changing habits, is causing investors to rethink strategies. Regional retail and hospitality rely heavily on cross-border tourism, particularly from mainland China, and without a resumption of travel it is difficult to see a way forward.

Older offices in core business districts face challenges from technology-enabled hybrid working. Meanwhile, younger generations expect a different experience from seasoned staff, with a greater emphasis on wellbeing, collaborative spaces and virtual communications.

Sustainable buildings are attracting investors, developers and occupiers, among a rising tide of regulation and a growing awareness of ESG. Net zero pathways and low energy buildings will become a priority over the coming years. Mounting evidence of a ‘green premium’ suggests a tangible shift is underway and investors don’t want to be left behind.

This article was originally published in https://www.savills.com

The Market Outlook for 2022 looks at Hong Kong’s core sectors (office, industrial, retail, investment) and has forecast a measured yet steady market stabilisation in year of continued recovery, renewal and reset. The research explains we expect a moderate start to the year, with momentum gathering pace from the second quarter onwards. Prices and rents have reset to a more attractive level, and we see now as a good time for investors and occupiers to drive their real estate strategies to capitalise on growth opportunities.

This report was originally published in https://www.colliers.com/

We are pleased to present our 2022 Global Public Real Estate Outlook Report!

This year, Hazelview celebrated its 10th anniversary investing in public REITs. And what a year it was, with publicly traded REITs rebounding strongly in 2021, experiencing a resurgence in demand, occupancy rates, pricing power and earnings growth. Navigating these evolving fundamentals required us to be flexible and committed to our investment process.

With our exceptional team of professionals based in Canada, the U.S., Europe and Asia providing Hazelview with the local eyes and ears to navigate these unprecedented market conditions, we begin our second decade where we finished our first, by looking for value that others have missed.

For those that received (and recall) our 2021 Outlook, we forecasted total returns of 15-20% for REITs in 2021. Outpacing this forecast, as well as most other industry segments, the REIT-opening in 2021 was in full swing. As for 2022, we believe the potential of sustained inflation will act as a tailwind for real estate valuations and coupled with strengthening fundamentals this will drive attractive earnings growth. Our target total return for global REITs in 2022 is 12-15%.

Segments we believe are exceptionally well positioned to outperform in 2022 include:

• Industrial Facilities in North America
• Data Centers in Asia
• U.S. Residential Sector 
• European Office REITs
• Cell Towers

We look forward to another exciting year, as we seek to deliver the strong risk-adjusted returns our clients have come expect. We hope you enjoy this report and that it inspires conversation. I look forward to connecting soon. 

See you in the new year, 

Corrado Russo
Head of Global Public Real Estate Investments

This article was originally published in  https://www.hazelview.com/

Increased global capital flows and growing optimism to buoy property investments in the region

• Tokyo, Japan is the #1 location to invest in during 2022
• 84% of investors are optimistic about the economic outlook
• The Industrial & Logistics sector has overtaken office as the most in demand asset class
• 74% of investors have already taken action on the environmental performance of their assets

HONG KONG, 9 December 2021 –Leading diversified professional services and investment management company Colliers (NASDAQ and TSX: CIGI) has revealed that quality office assets in major metropolitan markets like London, New York, Tokyo, and Sydney, have retained their allure and will be in high demand next year. Core and core-plus office spaces are the top global strategy picks, with 60% of investors stating these assets as their investment preference, while industrial and logistics (I&L) assets will be the most coveted.

Their appeal not only stems from the realisation that office demand is here to stay, particularly in cities supported by strong transport infrastructure and high amenity values, but also the ease of large-scale capital deployment that office assets represent. The rising cost of construction, viewed by four in five (81%) investors as a pain point, could limit new builds, renovations, and retrofit projects, amplifying the demand for existing quality office assets.

“Based on our 2022 Global Investor Outlook, pent-up demand and delayed transactions will translate into momentum next year. However, investors face an increasingly complex and competitive marketplace, coloured by new regulations and COVID-19 uncertainties. With the amount of dry powder readily available, offices in Tier 1 cities are seen as safe-haven assets that offer an attractive route to deploy capital,” said Tony Horrell, Head of Global Capital Markets at Colliers.

A standout year for Asia Pacific property investments

Across Asia Pacific (APAC), more investors are prepared to put into action their ambitious plans that have been delayed by COVID-19. Cross-border capital flows are also likely to return, as travel and business activity progressively returns.

Terence Tang, Managing Director, Capital Markets & Investment Services | Asia, opined: “Optimism across the Asia Pacific region continues to gather momentum and investors will have a clear appetite to expand their portfolios. Transaction volumes are recovering back to their pre-COVID highs, and asset operating performances remain in a cyclical upswing.”

Overall, I&L assets will be the most sought-after real estate assets in the region, with more than 20% of investors anticipating capital value gains of 10%-20% in value-add I&L assets in 2022, supported by tailwinds and large-scale economic transformation.

Significant interest continues to surround core-plus offices, which remain a popular asset class for regional investors in Tier 1 cities like Singapore, Sydney and Tokyo. 63% of the respondents indicated that they plan to invest in these assets, versus 54% last year.

Multifamily/built-to-rent (BTR) properties are also an increasingly sought-after asset class, with investors targeting both core and development projects. In Japan, this is a sector that is well established and has long attracted foreign core capital, whereas in Australia, it is an emerging asset class with development opportunities.

“BTR is essentially following the development of new infrastructure, which is a strategy we recommend across all asset classes. You need to look at what and where governments are building, the fundamentals of the land and invest in assets you can repurpose if required,” said John Marasco, Managing Director, Capital Markets & Investment Services | Australia & New Zealand.

Retail is for the opportunistic while specialised assets gain favour

Our survey shows that investors see significant potential for the appreciation and repurposing of retail assets. Around a third of the investors mulling retail allocations are targeting opportunistic (including change of use) investments. In addition, hotels are also an opportunistic target, with 38% of investors looking at this sector. Both hotel and retail sectors offer good opportunities in cities with large domestic markets, like Japan, Australia and Korea.

Specialised assets, particularly data centres, life sciences and healthcare, are expected to help boost investment volumes in 2022, with student housing also poised for a comeback as Australia, the region’s main market, opens up to international visitors.

“This interest in alternative assets will continue to grow in most Asian markets, as investors seek new avenues of growth and returns amid the changes brought about by ongoing technological evolution and healthcare needs,” said Tang.

ESG considerations are growing in importance to investors

The report also shows ESG (environmental, social, governance) considerations remain prominent, with nearly three in four investors surveyed globally integrating environmental factors into their strategies. This desire to invest with intent is both a means of future-proofing their assets and responding to stakeholder and societal pressures requiring them to respond to the climate crisis.

ESG has also become a strong focus in APAC, as it will soon be a priority in the office sector as government and corporate tenants pressure owners to get their ratings up.

About the Colliers 2022 Global Investor Outlook

The second edition of Colliers’ annual outlook for global property investors is based on a focused survey undertaken by 300+ investors across the globe and in-depth interviews with Colliers’ regional Capital Markets leaders. The findings and opinions featured in the report are shaped by their responses.

This article was originally published in https://www.colliers.com/en-in

December 6, Singapore – The Asia-Pacific region is set to continue its recovery from the pandemic, despite renewed uncertainty caused by the Omicron variant. Economies that have been hampered by lockdowns in 2021 will likely exhibit above-trend growth next year, according to Knight Frank’s latest report, Asia-Pacific Outlook Report 2022: Optimism and Opportunities Ahead.. 

Christine Li, head of research, Asia-Pacific, said, “The world and the Asia-Pacific region are now better equipped to cope with new variants, as vaccinations and oral medication for COVID-19 continue to gather pace. Although we are witnessing some knee-jerk reactions, over the next 12 months, we still expect most governments to move beyond lockdowns and transition to an endemic stage.”

“A wide range of indicators are pointing towards rebound and recovery in 2022, as Asia-Pacific enters a new cycle of growth driven by low interest rates and high inward investment. With these fundamentals in place, pent-up demand will fuel value growth across the region’s residential and commercial sectors,” Li added.

At a sector level, the report predicts an uplift of 20% in commercial transactions next year and a growth rate of between 3-6% for residential prices. Rents in the logistics sector are forecast to increase 2-3%, while office rents appear to be bottoming out to record more modest growth.

“As COVID-19 restrictions are relaxed, pent-up demand will support a solid recovery across the region. However, the trend will not be linear, and inevitably there will be bumps along the way in the form of new variants, supply disruptions, or ad-hoc restrictions. Fortunately, such setbacks are likely to be temporary and not distract markets from a solid broad-based recovery,” said Kevin Coppel, managing director, Asia-Pacific.

Sector Outlook

Office

• Job growth in the tech sector will continue to be a key driver of office leasing activity
• Co-working will continue to gain momentum from enterprise client demand as corporates adopt longer-term hybrid work strategies
• The region’s office market is expected to remain tenant-favourable, providing a window of opportunity for occupiers to capitalise on for better lease terms

Commenting on the office market, Tim Armstrong, global head for occupier strategy and solutions, said: “We are seeing an increased commitment to hybrid flexible workspaces as a part of occupiers’ strategies as we transition towards a COVID-endemic Asia-Pacific. Occupiers are recognising the impact of flexibility in facilitating employee engagement and cost optimisation.”

Logistics

• Rising transportation costs and the need for more resilient supply chains are driving companies to increase their logistics footprints to house larger inventory buffers
• Rental growth expected to increase by an average of 2-3% as supply for logistics spaces is unlikely to keep up with growing demand
• 13 out of 16 APAC markets tracked are expected to see increasing rents, with Auckland expected to see the highest rental growth.

“The quest to reconfigure supply chain strategies to become more resilient will result in sustained demand for modern logistics facilities, which will keep rents on an upward trend,” noted Armstrong.

Capital Markets

• APAC transaction volume is expected to see an uplift of 20% in 2022
• The office sector could potentially attract more than 60% of inbound investment into the APAC region
• The US and Singapore will continue to be the top sources of capital spend

Neil Brookes, global head of capital markets, said, “Economies forging a path towards the next phase of endemic living will set the stage for a sustained resurgence of cross-border investment into real estate. Competition for assets will remain intense as investors look to deploy record dry powder accumulated, which will keep yields down.

“While core office with long lease expiries and logistics assets will be keenly sought after, we expect activity to turn active across all asset classes as the rotation towards riskier sectors gain traction. There will be ample scope for investors to be creative in the new normal and look towards value-add or opportunistic plays to generate alpha,” Brookes added.

The COVID-19 pandemic, in its protracted state, has put a spotlight on many real estate assets’ strengths and weaknesses, according to the report. Investors are increasingly shunning older assets regardless of geographies and focusing on assets that provide a resilient income stream.

Emily Relf, global head of capital strategies,said, “With yields compressing in Europe to record lows, overseas investors are looking to re-weight their portfolio from low-growth markets in Europe towards higher-growth Asian markets. Assets with strong ESG credentials will attract greater demand. Indeed, Knight Frank research shows a positive premium on sales price for green-rated office buildings in London, Melbourne, and Sydney, indicating that demand for green buildings is a global phenomenon and set to grow.”

Residential

• The unorthodox access to international talent is likely to skew homebuying preferences across Asia-Pacific’s gateway markets in the long-term
• Ease of working from home, health, and wellbeing are essential features in a post-pandemic world
• 18 of 24 APAC cities saw price growth since the beginning of the pandemic and are expected to grow further in 2022

“Residential markets across the Asia-Pacific region could continue to strengthen in 2022 as the region starts to recover in the endemic phase. With more quarantine-free travel lanes reopening, foreign buyers could return to key gateway markets sooner than expected,” said Victoria Garrett, head of residential, Asia-Pacific.

“Now is the best time for domestic buyers to pick up their dream homes, given the potential policy interventions that could hamper purchasing prospects in 2022,” Garrett concluded. 

Active local investors dominate Q3 retail transaction volume as they eye potential capital growth

Retail investment activity has been subdued with only 48 completed deals in 2020 compared to the peak of 110 in 2018. However, with the easing of social-distancing restrictions, activity has picked up especially from veteran investors whose activity accounted for almost all the retail transactions concluded in Q3 2021. Unpacking this data further, our latest Colliers Flash reveals that the next six months could provide good timing for investors to bottom-fish. 

To #SeeWhatCouldBe and how you can capitalise on retail asset investment, read our latest report, or talk to an expert today.

This article was originally published in https://www.colliers.com/en-hk