Increased global capital flows and growing optimism to buoy property investments in the region.
Leading diversified professional services and investment management company Colliers (NASDAQ and TSX: CIGI) has revealed that quality office assets in major metropolitan markets like London, New York, Tokyo, and Sydney, have retained their allure and will be in high demand next year. Core and core-plus office spaces are the top global strategy picks, with 60% of investors stating these assets as their investment preference, while industrial and logistics (I&L) assets will be the most coveted.
Their appeal not only stems from the realisation that office demand is here to stay, particularly in cities supported by strong transport infrastructure and high amenity values, but also the ease of large-scale capital deployment that office assets represent. The rising cost of construction, viewed by four in five (81%) investors as a pain point, could limit new builds, renovations, and retrofit projects, amplifying the demand for existing quality office assets.
“Based on our 2022 Global Investor Outlook, pent-up demand and delayed transactions will translate into momentum next year. However, investors face an increasingly complex and competitive marketplace, coloured by new regulations and COVID-19 uncertainties. With the amount of dry powder readily available, offices in Tier 1 cities are seen as safe-haven assets that offer an attractive route to deploy capital,” said Tony Horrell, Head of Global Capital Markets at Colliers.
A standout year for Asia Pacific property investments
Across Asia Pacific (APAC), more investors are prepared to put into action their ambitious plans that have been delayed by COVID-19. Cross-border capital flows are also likely to return, as travel and business activity progressively returns.
Terence Tang, Managing Director, Capital Markets & Investment Services | Asia, opined: “Optimism across the Asia Pacific region continues to gather momentum and investors will have a clear appetite to expand their portfolios. Transaction volumes are recovering back to their pre-COVID highs, and asset operating performances remain in a cyclical upswing.”
Overall, I&L assets will be the most sought-after real estate assets in the region, with more than 20% of investors anticipating capital value gains of 10%-20% in value-add I&L assets in 2022, supported by tailwinds and large-scale economic transformation.
Significant interest continues to surround core-plus offices, which remain a popular asset class for regional investors in Tier 1 cities like Singapore, Sydney and Tokyo. 63% of the respondents indicated that they plan to invest in these assets, versus 54% last year.
Multifamily/built-to-rent (BTR) properties are also an increasingly sought-after asset class, with investors targeting both core and development projects. In Japan, this is a sector that is well established and has long attracted foreign core capital, whereas in Australia, it is an emerging asset class with development opportunities.
“BTR is essentially following the development of new infrastructure, which is a strategy we recommend across all asset classes. You need to look at what and where governments are building, the fundamentals of the land and invest in assets you can repurpose if required,” said John Marasco, Managing Director, Capital Markets & Investment Services | Australia & New Zealand.
Retail is for the opportunistic while specialised assets gain favour
Our survey shows that investors see significant potential for the appreciation and repurposing of retail assets. Around a third of the investors mulling retail allocations are targeting opportunistic (including change of use) investments. In addition, hotels are also an opportunistic target, with 38% of investors looking at this sector. Both hotel and retail sectors offer good opportunities in cities with large domestic markets, like Japan, Australia and Korea.
Specialised assets, particularly data centres, life sciences and healthcare, are expected to help boost investment volumes in 2022, with student housing also poised for a comeback as Australia, the region’s main market, opens up to international visitors.
“This interest in alternative assets will continue to grow in most Asian markets, as investors seek new avenues of growth and returns amid the changes brought about by ongoing technological evolution and healthcare needs,” said Tang.
ESG considerations are growing in importance to investors
The report also shows ESG (environmental, social, governance) considerations remain prominent, with nearly three in four investors surveyed globally integrating environmental factors into their strategies. This desire to invest with intent is both a means of future-proofing their assets and responding to stakeholder and societal pressures requiring them to respond to the climate crisis.
ESG has also become a strong focus in APAC, as it will soon be a priority in the office sector as government and corporate tenants pressure owners to get their ratings up.
About the Colliers 2022 Global Investor Outlook
The second edition of Colliers’ annual outlook for global property investors is based on a focused survey undertaken by 300+ investors across the globe and in-depth interviews with Colliers’ regional Capital Markets leaders. The findings and opinions featured in the report are shaped by their responses.