Thought Leadership

In the last five years, Asia’s share of the FTSE EPRA/Nareit Developed Index, the most widely followed real estate index globally, has declined from 25.0% in 2017 to 21.0% at the end of 2022.  This movement can be largely attributed to the growth of U.S. REITs, shifting the balance of power within the listed universe further to North America, whose share of the index rose from 57.1% in 2017 to 64.0% in 2022.

The growth in the U.S. REIT universe has been driven by the emergence of a wide range of alternative real estate sectors that have arisen from structural shifts in the economy and strong demand from equity investors.  The share of these alternatives in the U.S. portion of FTSE EPRA/Nareit Developed Index rose from 34.0% in 2007, to 47.5% in 2017 and 55.0% in 2022.

Growth in the U.S. listed REIT universe has been so prominent, that index constructors such as FTSE introduced capped indices, limiting the size of the U.S. component to avoid global indices being increasingly seen as ‘US & others’ and diminishing their usefulness to investors.

One might ask: Why has Asia been unable to keep pace with the growth in U.S. alternative REITs? In fact, Asia’s alternative REIT universe has grown even faster than in the U.S.. While Asia’s weight in the global REIT index fell – from 27.1% in 2017 to 21.0% in 2022, the weight of Asian alternative REITs increased from 2.3% of the global index to 3.8%, respectively. Looking only at the Asian REIT universe, alternative REITs grew their weight by an impressive 114.7%, from 8.5% in 2017 to 18.2% 2022.

This paper, written by Joachim Kehr, Head of Asia-Pacific and a Senior Partner at CenterSquare Investment Management, investigates the sectors behind the expansion of alternative REITs in the U.S. and Asia over time and explores which sectors offer the biggest growth potential for Asian alternative REITs, proposing additional steps to sustain this growth going forward.

As international container shipping increases, so does the need for more logistics real estate—especially in seaport markets. In this report, CBRE looks at 18 well-established and emerging seaports to understand their capabilities and connections to other ports, as well as how they influence nearby industrial real estate markets.

Key findings:

• Ocean shipping keeps growing—more than 80% of the world’s merchandise trade by volume is seaborne, of which more than half is shipped in ocean containers—driving strong demand for logistics space near seaports.
• E-commerce sales and holding more inventory to guard against supply chain disruptions are also spurring demand for industrial & logistics properties—especially those with strong transportation links to seaports.
• Transportation costs are a paramount consideration in site selection, accounting for 45% to 70% of logistics spend, versus 3% to 6% for fixed facility costs like rent.
• Ongoing risks—including persistent inflation, rising interest rates, geopolitical tensions and pandemic-related disruptions—are prompting companies to reevaluate supply chain strategies and locations.

This report was originally published in https://www.cbre.com/insights/reports/2022-global-seaport-review

Real estate investors enter 2023 facing a very different investment landscape to the one they encountered at the beginning of 2022. Many property markets were still riding high this time last year. In 2021, they had delivered the strongest returns since before the 2008 global financial crisis (GFC), bouncing back from COVID-19-related weakness on the back of pent-up demand and a particularly buoyant industrial market. As 2022 progressed, however, that pent-up economic demand combined with exogenous supply shocks associated with the Russia-Ukraine war drove inflation to levels not seen in decades.

The future for real estate investing has not been so uncertain since the GFC, and this new environment presents many challenges for investors: Overall deal activity has plummeted as investors pause to reassess the risks they face and underwrite appropriately. While it is clear that sentiment is weak, this pause in activity levels means that pricing evidence is scarce; and for that reason, it will be important to triangulate from a range of data types and sources. Without the tailwind of compressing yields, returns will be driven more by occupier-market fundamentals — which, for office markets, are at a structural turning point. Understanding the interplay of rental growth, occupancy and expenses on delivered income across markets and property types will be key. These factors will be just a selection of the growing number of inputs that may drive asset performance in an increasingly complex investment environment. The ability to attribute risk and performance to a growing number of factors like yield and leasing profile, as well as exposure to more secular risks like climate change, will be increasingly important for investors.

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The rush of post-pandemic activity in the data center space seen throughout 2021 continued in 2022, despite headwinds in the overall economy and resource challenges in some of the largest markets worldwide. Hyperscale tenants continued their relentless expansion across regions, with specific interest toward secondary and emerging markets. Co-location providers and developers have followed suit, driven by higher availability and lower prices for both power and land.

The 2023 Global Data Center Market Comparison reviews all factors outlined in the previous edition of this report, with further commentary on a region-by-region basis. As with previous editions, we assess data center markets across the globe, within 13 different categories, to determine the top overall markets along with the top performers in each category. With this fourth edition of the report, we hope to provide members of the data center community with a better understanding of how the industry is rapidly changing and expanding across the globe.

Despite the challenges of juggling an economy under the weight of its zero-covid policies and stringent macroprudential measures, the Chinese government has remained steadfast in implementing its vision for the country’s REIT market. 2022 ticked off another milestone in the ongoing evolution, as China’s first batch of rental property REITs went public in August, deepening financing channels for the country’s real estate sector.

Strong regulatory backing, quality asset base and robust underlying demand for dividend-rich stocks from investors in China’s US$12 trillion stock markets will remain supportive of the sector’s strong valuations. Progress is palpable, and we can expect more C-REIT listings in 2023. The inclusion of conventional commercial real estate – arguably the proverbial holy grail and the final frontier in the evolution of C-REITs – is nearing reality and the wave of listings that follow will undoubtedly be a massive investment opportunity.

As many economies continue to raise interest rates to tackle inflation, and with growing concerns of a recession in other parts of the world, Asia Pacific investors have become more cautious, with net buying intention softening in 2023. 

CBRE’s 2023 Asia Pacific Investor Intentions Survey, which features insights from more than 500 investors across the region, finds that although fundraising activity remains healthy, most investors intend to adopt a wait-and-see stance in the first half of 2023 in anticipation of slower yield expansion and milder rate hikes.

Other key findings include:

• Real estate allocations among Asia-based institutional investors are largely below their global peers. These respondents indicate that their allocations to real estate will remain the same or increase over the next 12 months.
• Opportunistic strategies will gain momentum in 2023 as investors look to capitalise on price dislocation and seek distressed opportunities.
• Industrial and logistics remains the most preferred asset class, while residential (especially multifamily and built-to-rent) logged the strongest uptick in interest. Offices are still the top property type among core investors.
• Although healthcare-related properties have overtaken data centres to become the most popular alternative sector, the investible universe for this asset class in Asia Pacific remains limited.
• Tokyo retained its status as the top city for cross-border investment for a fourth consecutive year, followed by Singapore and Ho Chi Minh City.

This report was originally published in https://www.cbre.com/insights/reports/asia-pacific-investor-intentions-survey-2023

India has long been recognised as a country with immense potential, but it was often hindered by bureaucracy and red tape. In recent years, however, India has made laudable strides, with its economic growth leapfrogging other major countries, in part driven by concerted government-led reforms and sector-focused initiatives that have shaped a more business-friendly climate, particularly for foreign investment.

Today, India has forged ahead into a new era, and the country holds much promise with the largest youth population in the world1 and the second largest labour force2 globally. Investors can look forward to sustained returns from key beneficiaries of these structural advancements, particularly in the Office and Business Park sector.

This report was originally published in https://www.capitaland.com/en/about-capitaland/newsroom/inside/2023/January/Riding_the_Growth_Impetus_A_Focus_on_Indias_Office_and_Business_Park_Sector.html

CBRE’s 2022-23 Global Fit-Out Cost Guide is the industry’s most comprehensive analysis of fit-out pricing globally. This year’s edition focuses on the global changes in work models and the challenges faced as a result of the pandemic, climate change and heightened economic uncertainty.

The global shift in workplace behaviors has resulted in new ways of thinking about the construction of offices. Companies have adopted hybrid work models, and people need a blend of flexible, team and event spaces. Likewise, many companies have set net-zero carbon targets, expanding real estate sustainability strategy beyond energy savings to include decarbonization and Environmental, Social and Governance (ESG) criteria.

But with the changes there have been challenges. The lingering effects of COVID-19 and the war in Ukraine have led to economic and supply chain uncertainty, which affects the fit-out market by diminishing budgets amid inflation and causing long lead times in procurement.

CBRE introduced our Fit-Out Cost Guide in 2013 as a benchmarking tool to support planning and investing in capital fit-out projects. This year our cost guide leverages more quality data than ever before, with input from strategic partners.

The 2022-23 guide provides insight into global market trends, with regional data from APAC, EMEA, North America and Latin America.

This report was originally published in https://www.cbre.com/insights/books/global-office-fit-out-cost-guide-2022-2023

Although there were an estimated 150 million people living in rented accommodation in China in 2020, the country’s penetration rate of multifamily rental apartments remained very low, standing at under 2%. However, the evolution of China’s demographic structure; shift in housing consumption demand; and comprehensive government policy support are expected to drive an increase in the number of multifamily rental apartments to more than 12 million units by 2030.

CBRE believes that the sector’s strong leasing fundamentals and potential for asset liquidity and scalability will ensure multifamily emerges as one of the most attractive commercial real estate investment asset classes in China in the next ten years.

With around three-quarters of China’s target multifamily users located in Guangdong, Shanghai, Beijing, Zhejiang and Jiangsu, investors are recommended to target these core markets in the country’s three major coastal city clusters. Site selection should also consider accessibility to public transportation and commute time to workplaces. The main investment approaches to multifamily rental apartments in China include acquisition and renovation of existing assets, greenfield development, and platform collaboration.

Affordable housing possesses both policy and market-oriented characteristics. Exit channels provided by C-REITs; regulatory approval for the conversion of non-residential housing into rental housing; and favourable taxation and credit policies will provide the sector with unique investment advantages.

On the operational side, CBRE recommends investors increase their investment returns through active management measures such as bulk procurement, digitalised leasing and operations systems, floor plan reconfiguration and value-added services.

This report was originally published in https://www.cbre.com/insights/reports/investing-in-china-multifamily-real-estate

On December 7, 2022, the Chinese government announced a 10-point plan signalling a shift away from its zero-tolerance COVID-19 policy. The measures were announced as China’s short term economic indicators continued to weaken, with local governments in particular coming under acute financial strain.

Retail and tourism are set to be the main beneficiaries of the policy easing. Given the performance of other Asia Pacific markets since their relaxation of pandemic-related policies, CBRE expects retailer expansion to pick up as early as Q2 2023, supported by rising demand for prime retail space and the bottoming out of shopping mall rents as infections gradually subside and the population adjusts to a living with COVID-19 policy.

With regard to the office market, the easing of pandemic restrictions will bring about an increase in site inspections. A rebound in office demand is likely to follow in another three to six months as occupiers’ business outlook brightens along with the economic recovery.

Improving economic fundamentals should boost commercial real estate investment volume in 2023, which will continue to be driven by domestic institutions. With the Five-Year Loan Prime Rate (LPR) standing at an historically low 4.3%, cheaper lending costs will strengthen China’s relative appeal to cross-border investors.

CBRE recommends long term core investors focus on built-to-rent multifamily, business parks and industrial parks around tier I cities, along with trophy office assets in Shanghai and Beijing. Opportunistic investors are advised to target distressed assets. Mainland China’s re-opening will eventually benefit the retail and hotel sectors in Hong Kong SAR, Japan and Thailand, as well as the student living and residential sectors in Australia.

This report was originally published in https://www.cbre.com.cn/en/insights/briefs/China-Brief–China%E2%80%99s-shift-from-zero-covid-to-reopening-seen-as-hugely-beneficial-to-real-estate