JLL: Investors to raise transactions

Asia-Pacific’s real estate transaction volumes in 2019 are expected to rise by 5%, says global real estate consultant JLL. “A decade into the economic cycle, investors are contending with macrorisks and geopolitical uncertainty such as rising interest rates, continued trade tensions between the US and China, as well as strains in the EU caused by Brexit negotiations,” said Stuart Crow, head for capital markets of JLL Asia-Pacific. “Against this backdrop, real estate continues to be a safe haven for investments, with portfolio diversification benefits and relatively higher returns compared with other asset classes. In this late-cycle environment, investors are becoming more selective and disciplined when exiting investments because it’s getting harder to find income-producing alternatives.” Megan Walters, head of Asia-Pacific research for JLL, said, “Despite the macro-concerns, we believe this region’s opportunities will mitigate the risks, spurring investors and occupiers to look into sectors that have defensive qualities or those that run on less cyclical demand drivers.” In Asia-Pacific, JLL says real estate demand will continue to be driven by strong demographic fundamentals. The region’s urban population is expected to exceed 400 million people by 2027, while people aged 65 and above will rise by 146 million people within the next 10 years. By 2021, AsiaPacific’s e-commerce market is projected to grow to US$1.6 trillion (51.1 trillion baht). The five key trends expected to shape the industry in Asia-Pacific in 2019:

1. GROWTH IN LIVING ASSETS

The region’s growing urban population has a growing demand for alternative residential arrangements, including student accommodation, co-living, multi-family, nursing homes and aged care. For investors, these living sectors offer attractive yields and long-term growth prospects as well as an opportunity for portfolio diversification. “These new sectors are set to outperform traditional residential assets, given their efficient use of space, superior building management, and generally higher entry yields,” said Mr Crow. “Aged care, for instance, offers returns of 11-14% in Tokyo, and 8-12% in Singapore.”

2. BUILDING FLEXIBLE SPACES TO ATTRACT TALENT

Businesses increasingly use shared workspaces as a way to foster innovation among employees and win the war for talent. This renewed focus on building human experiences has led to an uptick in flexible offices — including coworking and serviced offices — across the region. “By 2030, flexible workspaces could comprise 30% of some corporate commercial property portfolios worldwide. This means that market consolidation will become more common — landlords and developers will start to create their own flexible space offerings, form joint ventures with co-working providers, or look at mergers and acquisitions among co-working brands,” said Ms Walters.

3. RISE OF LOGISTICS AND DATA CENTRES

With Asia-Pacific leading global e-commerce adoption, there is rising pressure for organisations to establish data storage infrastructure as well as warehousing facilities for physical retail goods. “The robust rate of consumption is driving increasing investor interest into data centres and logistics in AsiaPacific. These sectors will continue to expand, with significant capital targeting emerging markets like China, India and Indonesia. Logistics hubs in major cities are growing. For example, the logistics market in Sydney increased sevenfold during 2015-17,” said Mr Crow.

4. SHIFT TOWARDS DEBT EXPOSURE

With banks tightening their lending criteria, a gap is left for non-bank and offshore lenders to enter the market, particularly in Australia, India and China, said Mr Crow. As a result, there is a spike in investors turning to global offshore lenders who provide flexible forms of either debt or equity on selected projects. Institutional investors are also expanding their footprint into real estate debt. “Debt investment is one way to curb risk in a portfolio and investors are increasingly looking at ways to use debt to shield them from market volatility and falling property incomes,” he said.

5. EVOLUTION OF SMART CITIES

With smart city initiatives pushing ahead in Singapore, Japan, South Korea and Australia, Asia-Pacific has seen an increasing need to build better digital infrastructures to maximise efficiency, sustainability and improve the living conditions for inhabitants. “Proptech — the convergence of real estate and technology — plays a key role in the future development of cities. As smart cities are highly data-driven, smart property development and management enable extensive data collection and analytics — both of which are crucial for cities to create more liveable environments,” said Ms Walters.