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Asia Pacific to outperform other regions in 2020 for real estate investment

Investment in Asia Pacific real estate has reached US$125 billion in the first three quarters of 2019, up 10 per cent year-on-year, and is set for another strong year in 2020, says JLL.

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According to the real estate consultancy, foreign investments into Asia Pacific are at a decade-high, making up 35 per cent of total volumes, mostly driven by private equity funds and large-scale transactions.

“Real estate in Asia Pacific has gained favour in the last year as investors continue to seek high yields and stability amid a climate of geopolitical uncertainty and slowing economic growth. As an increasing amount of capital is being allocated to real estate, we’re seeing more clients making larger-scale investments to expand their portfolios.”

Stuart Crow, CEO, Capital Markets Asia Pacific, JLL.

“Over the next two years, we expect global real estate transaction volumes to stay elevated and Asia Pacific to outperform Europe and the Americas with an outsized portion of global investor interest.”

JLL reveals five key trends that investors should look out for in 2020.

1. Logistics assets are a hot ticket

Investor appetite for logistics continues to pick up, meaning these types of facilities are held tightly. The result is that investors must become more creative in order to access quality assets.

“We’re seeing more investors form joint ventures with major established players. Some are taking partial stakes or even going into public markets. A recent example is Canadian pension fund OMERS’s cornerstone investment in ESR logistics platform when the latter filed to be listed on Hong Kong’s stock exchange,” says Mr Crow.

“Another avenue to accessing quality portfolios has been via the mergers and acquisitions route, with the likes of warehouse operator GLP, Viva industrial REIT and Propertylink REIT among some of the larger platforms to be acquired.”

2. REITS are the next to watch

In 2019, Asia Pacific REITs (Real Estate Investment Trusts) raised a record amount of capital at over US$14 billion, surpassing the previous record of US$13.8 billion in 2013.

JLL predicts that Singapore and India will see more REIT initial public offerings next year, mainly driven by their focused growth strategies and consistent trading performance. More strategic mergers and acquisitions will allow funds to grow geographically and deepen their investments into newer markets in U.S. and Europe.

“Looking ahead, REITs are likely to continue their strong trading performance and be highly competitive buyers of real estate assets. Size matters and we can expect to see more consolidation in this sector.”

STUART CROW, CEO, CAPITAL MARKETS ASIA PACIFIC, JLL.

3. Sustainability initiatives present investment opportunities

The next generation of buildings is set to become more ‘green’, with sustainable technologies to save on operating costs as well as innovative design to attract more occupiers and tenants, says JLL. Recently, Singapore-listed Keppel REIT has obtained a green loan facility to grow its green building portfolio.

Mr Crow explains: “We believe that governments in this region are sustainability conscious and proactive in transforming their cities to make them smarter and more livable. These initiatives present opportunities for astute real estate investors, either by acquiring or developing sustainable assets, or being a part of the city redevelopment process.”

Singapore, for instance, has started on its sustainability journey with the decentralisation of its CBD, encouraging the redevelopment of older office buildings into mixed-use integrated developments and reducing the use of private transport. Similarly,  Beijing has restricted the size of commercial developments in the central area and targets to reduce the population in its six central districts by 15 per cent from 2014 levels.

4. Innovative cities will dominate office markets

According to JLL’s latest Premium Office Rent Tracker, technology firms – particularly online platforms – are playing a greater role in driving up rents for premium offices, which have previously been the domain of the banking and financial services industry. This is particularly the case in innovation-rich cities like Beijing, Tokyo, Seoul, Shanghai, Singapore and Osaka.

Like real estate investors, corporate occupiers are attracted to these locations with sophisticated innovation ecosystems. These cities sustain highly skilled workforces and are best placed to succeed in the global marketplace, says JLL.

“We’ve seen how technology can help to shape a city’s economic growth by attracting investors and companies. Beijing’s office market will become a hotspot for investors next year as it has a strong talent pool supported by a deep-rooted innovation ecosystem. It has nurtured the most unicorns outside of Silicon Valley and is the third largest destination for venture capital funding,” adds Mr Crow.

5. Flex space boom continues

By 2020, collaborative and agile workspaces are expected to increase from 19 per cent in 2018 to around 30 per cent of corporate commercial property portfolios worldwide, according to a JLL survey of 560 corporate real estate leaders. The firm predicts that flex spaces could expand in key gateway cities such as Singapore, Tokyo and Sydney, where demand continues to be high and there is room for more coworking operators and serviced offices to grow.

“Flexible space in Asia Pacific continues to attract the attention of investors and occupiers alike as the sector maintains its strong growth trajectory,” concludes Mr Crow. “Landlords and developers are likely to maintain their partnerships with coworking operators or serviced offices, and some will create their own flex space offerings to keep up with tenants’ changing needs.”

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