Thought Leadership

• Tenant enquiries and site inspections continued to rise but momentum slowed compared to the previous two months.
• Flexible space demand remains steady, with most respondents stating that they had not detected any major change.
• Respondents reported stronger downward pressure on rents, while incentives are expected to increase in most major markets.
• After staying positive for two months, leasing sentiment deteriorated slightly, falling back into negative territory. Landlord strength also weakened.

Last year was a tough one for commercial real estate in Singapore and Malaysia. But with record-breaking transaction volumes rounding out 2020 and Covid-19 vaccines rolling out at speed, there’s hope on the horizon.

This week, Yardi brought together some of the region’s brightest economic brains to unpack the data and unearth the trends. Here are the top five insights to help guide your investment decisions in 2021 and beyond…

1. Both markets are on the move Oxford Economics is predicting a GDP growth rebound of 7.1% in Singapore and 5.4% in Malaysia. Singapore is likely to return to pre-Covid levels in the second quarter and Malaysia in the fourth. But “growth recovery is dependent on health success” and is tied to each country’s efforts to contain Covid infections, warned Oxford Economics’ lead economist for Asia, Sian Fenner. The vaccine rollout is key to recovery, Fenner emphasised. In Singapore, just under 24% of the population has received its first dose. A 80% vaccination rate – and with it herd immunity – will be achieved in Singapore by the third quarter. While just 2-3% of Malaysians are currently vaccinated, 70% of the population will be fully vaccinated by the end of the year, Fenner said.
2. Economic scars will take time to heal Rebound and recovery in both nations will be influenced by “economic scarring,” Fenner told Yardi’s engaged audience of property professionals. It will take time for businesses to repair their balance sheets and for the labour market to address skills mismatches, she explained. Singapore has followed a V-shaped recovery after an historic fall in GDP. “Singapore has almost recouped its loss in output and its GDP is now close to its pre-pandemic level,” Fenner’s colleague and Oxford Economics economist Sung-Eun Jung said. But this headline figure masks sectoral differences. Manufacturing has posted a “stellar performance” due to strong demand for consumer electronics and pharmaceutical products. The services sector, hit hard by restrictions, will “continue to underperform”. The finance sector, meanwhile, continues to expand. Tightening restrictions in January, while not as disruptive as those in 2020, dipped Malaysia back into recession and “weighed heavily on the services side” of the economy, Fenner added. Infrastructure projects in Malaysia are a bright spot, with both short and long-term projects expected to have a “strong multiplier effect through the economy”.
3. Asia Pacific investment volumes broke records last year We finished a horror 2020 with Asia Pacific investment volumes down 19% on the previous year, but with a record fourth quarter. “People were saving up their money for the final push,” said David Green-Morgan, managing director of Real Capital Analytics in Asia Pacific. “The deals just kept coming in.” This brought 2020 back into line with a respectable US$150 billion in investment. Nevertheless, Singapore was one of the region’s weakest real estate markets in 2020, with transaction volumes falling 60% year-on-year. Malaysia was not much better, posting a 56% drop, Green-Morgan added.
4. Real estate performance is not just a Covid story Singapore was one of the most active commercial real estate markets in the region pre-Covid, Green-Morgan said. The city state was sixth placed in 2018 and 2019, but last year slid to 11^th place on Real Capital Analytics’ rankings. Singapore’s $3.2 billion in sales volume was down 73% year-on-year. Kuala Lumpur, meanwhile, didn’t even scrape into the top 20. Rather than a Covid story, Singapore’s slip indicates a natural decline that the pandemic has simply “accelerated and heightened,” Green-Morgan said. Singapore enjoyed a “record year” in 2019, so “2020 was always going to be a struggle to match”. Covid-19 continued a downward trajectory in Malaysia’s commercial real estate activity that was already well underway. What has driven that decline? Green-Morgan said the most notable factor was ongoing fluctuations in the political environment that created uncertainty, followed by capital looking further afield to Vietnam. The Malaysian Government is looking to enact policies to make movement of capital easier, and that will be a “big boost” he said.
5. There’s a deep pool of capital looking for deals Real Capital Analytics is expecting an increase in Singaporean activity this year. Green-Morgan pointed to deals at Samsung Hub, a 30-storey strata building completed in 2005, as a sign of the times. Prices have climbed and recent transactions have secured almost US$3,000 a square foot “quite a significant milestone for the Singapore market,” Green-Morgan added. Despite the challenges, the money continues to flow into Malaysian commercial real estate. The biggest deal last year was for a former air base in Kuala Lumpur, purchased in a joint venture between the Malaysian Government and China’s state-owned enterprise China Railway Engineering Corp. “The land deal was worth US$1.5 billion but it’s got a development value of $36 billion if it all pushes ahead. It’s a huge scheme in the ASEAN context,” Green-Morgan concluded.

Wrapping up the webinar, Yardi’s Devine observed the outlook for both markets is “positive yet challenging but still uncertain”. “One of the main things we’ve learnt over the last 12 months is that certainty is a fairly rare commodity”.

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Private assets face demands for transparency amid greater interest from investors seeking to understand risks, performance and how these investments compare to public securities. We speak with Peter Shepard, Head of Fixed Income, Multi-Asset Class and Private Asset Research and Brian Schmid, Global Head of Product Management and Applied Research at Burgiss.

Private assets face demands for transparency amid greater interest from investors seeking to understand risks, performance and how these investments compare to public securities. We speak with Peter Shepard, Head of Fixed Income, Multi-Asset Class and Private Asset Research and Brian Schmid, Global Head of Product Management and Applied Research at Burgiss.

Listen to Podcast Here: https://www.msci.com/perspectives-podcast/private-assets-withstand-public-attention

Occupiers adopt remote-working concept

At the end of the first quarter of 2020, the country was forced to go into a complete lockdown of business activity due to the pandemic.In March 2020, workplaces were shut, and employees were working from home for the first few weeks. By May 2020, while workplaces had begun to re-open partially with easing lockdown restrictions, not all companies were asking their employees to return to office. Further, we are still witnessing a large proportion of employees working from home. The trend of ‘Work-from-home’ and ‘Work-from-anywhere’ has gained significance thereafter and occupiers have displayed openness to remote working. The poll results suggest that a majority (60%) of occupiers foresee about 21% to 40% of their workforce to be working from a non-office location over the next 12-24 months. However, as occupiers are revisiting their density plans in existing offices to enable a safe return for employees, we expect a gradual revival of the sector and office absorption should start showing signs of recovery in H2 2021. We believe that occupiers will likely resort to a ‘hub & spoke’ model, offering flexibility to employees to work from anywhere or near clients. Hence, the indications are that flexible workspaces will likely gain significance in such a scenario.

The Retirement Census is an annual data collection proces conducted amongst Australian retirement village operators. It covers retirement villages governed by state Retirement Villages Acts, rather than other forms of seniors’ living accommodation.
The 2020 Retirement Census covers FY20 (July 2019 June 2020). From March 2020, Australian businesses across all sectors have been significantly impacted by COVID 19 induced government restrictions on operations, employment, and service provision. Participation in the Retirement Census is entirely voluntary, meaning participating operators change year to year. Comparison with previous year figures should be considered with this in mind.

To view the cenus please click below:

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.

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.

Real estate companies have ramped up their investment in technology in response to the COVID-19 pandemic, finds a survey of some of the biggest property players in Asia.

The survey by independent news source Mingtiandi, in collaboration with technology company Yardi Systems, finds 70 percent of real estate companies are scaling up their investment in property technology, or proptech.

Please click below to download the full report.

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.

• The COVID-19 pandemic and the ensuing lockdowns’ economic ramifications have caused significant uncertainty over the future of work and rental income from office properties.
• Nearly 60% of the UK Quarterly Property Index’s office rental income comes from leases that expire or contain a break-clause date over the next five years.
• A review of lease events showed that in 2019 47% of offices were vacant for one quarter or more after a break clause and 72% were vacant after lease expiry.1 These numbers could rise amid COVID-19, leaving more rent at risk.