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Expert Talks | Investment opportunities shine in APAC

As efforts to hedge against the macroeconomic and geopolitical climate gather steam, and investors take a longer-term view in search of higher returns, the demand for premium real estate across office, industrial, retail, residential and hotels in Asia Pacific is becoming stronger and more resilient.


 

Higher borrowing rates may be slowing down the pace of deals with investors turning more cautious and selective, but solid capital raised in record deals over past quarters continues to find interesting opportunities in the region with potential for robust returns.

Surging prices may be making property development expensive, but on the flip side, it is powering higher rental returns for owners and investors. Investing in prime real estate today is seen as a good strategy to cushion against inflationary pressures. The demand for residential real estate built purposely to rent out, as a result, is on the rise across Asia Pacific (APAC) markets.


“Aiming to hedge against inflation, we see global investors increasingly shifting capital toward hard assets like real estate. Their focus is on the growing APAC markets where many investors remain under-weighted so far. Over the coming years, prime assets across key Asia Pacific markets will be well served by the region’s economic tailwinds and an increasing global capital allocation to the sector.”
John Howald
Executive Director & Head of International Capital | Asia Pacific



The push towards environment, social and governance (ESG) compliance, data storage and use, and food security are among the most influential trends driving real estate today. ESG is leading the flight to quality assets, as investors are drawn to cost efficiencies led by lower energy consumption, as well as design quality, enhanced employee experience and improved social outcomes.

Businesses are reserving new spaces to promise ultimate office experience as several of them heighten efforts to drive return to office, while keeping focus on retaining and attracting people amid the talent crunch. 

Moreover, several local currencies’ slide against the dollar is leading investors to new pockets of attractive buying opportunities. Governments across the region are heightening policy measures to open new investment opportunities, supported by increased expenditure on new infrastructure initiatives.

That is crucial, as real estate assets which benefit from proximity to infrastructure, including transit, education, healthcare and data centres, continue to demonstrate comparatively higher returns with investors drawn towards future-ready assets. Gateway cities with the highest volume of air travel, tourism, seaports and industrial are net migration positive, propelling investments into residential, retail and logistics. 


“From the property cycle point of view, we are on a recovery mode. In today’s two-tier market, while there’s more competition for premium assets, there are more opportunities in the secondary markets. However, investors continue to be selective and for low-risk plays, their focus remains on premium assets promising next gen and future-proof capabilities with strong ability to attract green finance. ESG is indeed playing a big role in terms of where the money goes.”
John Marasco
Managing Director, Capital Markets & Investment Services | ANZ



APAC Overview

Office and industrial categories remain investors’ hot favourite across most APAC markets, including Australia, Singapore, India, South Korea, Japan, Hong Kong or China. As hybrid work models continue to trend, employers are going the extra miles to create the next generation of offices with focus on culture, community and collaboration. 

In retail, the physical stores expansion spree by several leading international brands have led to strong rental rebound with limited supply and tightening vacancy rates in key markets like Singapore, Australia, Hong Kong, China and India among others. Aside from the steady surge in tourist spendings, retail is buoyed by the phasing out of pandemic restrictions which has led to increased footfalls in shopping malls. Although the pace of retail uptick could be tempered by persistent inflationary pressures and staffing shortages, retailers are locking in prime spaces before further rent increase and are using this time to strategically curate physicals stores for enhanced shoppers’ experience. 

Hotels, as a result of travel reopening, are on investors’ radar in many markets including Thailand, Singapore, Australia, India and Japan. Luxury hospitality assets, at distressed or slightly below pre-pandemic valuations, pose as good acquisition opportunities across regional markets. 

Investors now have their sights on alternative investments across data centres (India, China, Thailand and Singapore), logistics and warehousing (India, Vietnam, Indonesia, Singapore, Taiwan and China), cold storage and last mile fulfilment centres (Indonesia), business parks (China), multi-family living (Japan) and life sciences (Australia).

Australia

Local trends driving investment
  • Record low unemployment rates leading flight to quality as businesses promote premium office experience to attract talent
  • Singapore investors seen active in Melbourne’s office market
  • Foreign investors dominating biddings in major sale campaigns
  • Investors waiting to deploy capital raised in record deals in past 6 months
Top investment opportunities
  • New generation assets in Sydney are attracting a deeper tenancy pool
  • Healthcare, life science and integrated infrastructure developments 
  • Melbourne continues to be affordable with long-term growth prospects 
  • REITs may recycle assets in 2H22 as share prices remain below Net Tangible Assets (NTA) 

COstly2x    

US$8.3bn

1H22 total investments

India

Local trends driving investment
  • Domestic investors back with vengeance, securing mixed use and retail assets
  • Foreign investors led by sovereign and pension funds stay focussed on industrial and retail
  • Office occupiers expanding across cities to enhance footprint even as hybrid work models dominate. Large technology corporates fast signing up new offices
  • Investors keen on completed malls with retail boom in fashion and F&B brands
Top investment opportunities
  • Marquee hospitality assets at realistic and stressed valuations pose as good acquisition opportunities
  • Fresh investments into building global capability centers in India over the next few years
  • Greenfield investments especially in the office and industrial & logistics sectors

COstly2x    

US$2.6bn

1H22 total investments

Japan

Local trends driving investment
  • Investments accelerating beyond Tokyo in Yokohama, Osaka, and Nagoya, signaling recovery while cross-border investments stay strong
  • Supported by a weaker yen and interest rate differentials, properties in Japan emerge favourable to foreign investors as they enjoy pricing advantage over domestic investors
  • Long-lasted deflation since late 1990’s made local companies extremely hesitant to raise prices, suppressing CPI increase while PPI increased significantly
  • Japan’s inflation rate milder than other countries. Cost of living relatively modest so far
Top investment opportunities
  • Japanese real estate across the board is highly attractive for foreign investors given the weakened currency exchange rate and relatively lower borrowing cost

COstly2x    

US$14bn

1H22 total investments

Singapore

Local trends driving investment
  • With abundant capital at work, investment volumes to roll despite macroeconomic concerns.
  • Sizeable funds targeting limited supply in prime locations, enabling capital growth. 
  • Cap-rate compression in industrial leading to greater allocations in development or redevelopment projects. 
  • Prime retail and hospitality attracting attention with easing travel restrictions. 
  • Retail on expansion mode with improved confidence after rent recovery in 2Q22. 
Top investment opportunities
  • Forward purchase of commercial opportunities as some developers redevelop older assets encouraged by the CBD incentive scheme 
  • Retail and industrial assets remain attractive as growth in their capital values underpinned by rental growth and tight supply
  • Mixed used assets or integrated development drawing good interest. More of such expected to be transacted in the private market as they entail less additional buyer stamp duties than pure residential developments, offering buyer asset class diversification opportunities

COstly2x    

US$12.6bn

1H22 total investments

South Korea

Local trends driving investment
  • Despite rising interest rates, strong investors' interest in South Korean commercial real estate.
  • Domestic investors continue to dominate the investment scene.
  • Tech companies emerging as major buyers. Hence, office prices remain high amid restricted supply, particularly in Gangnam area.
  • Investments continue in hotels to be converted into offices and residences.
Top investment opportunities
  • Data center investments look attractive for portfolio diversification
  • Time to shift focus to logistic centers as alternatives to investing in offices due to decline of office availability in the current market
  • Good time to evaluate investments in data centers, hotels and seniors housing

COstly2x    

US$21bn

1H22 total investments




For real estate in Asia Pacific, it is the beginning of a new future. Winners will be those that understand the profound shifts in today’s business dynamics and are able to spot new opportunities with agility, to tactically execute winning strategies built around optimised spaces, creating the ultimate experience.




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