According to JLL, a global commercial real estate consultancy, Asia Pacific's total real estate transaction volumes are projected to increase by 5% in 2019, but the rate of growth will slow. Qatar for sale | Apartments for sale
Mr. Stuart Crow, Head of Capital Markets, JLL Asia Pacific, says, "A decade into the economic cycle, investors are contending with macro risks and geopolitical instability such as growing interest rates, continuing trade tensions between the US and China, as well as strains in the EU triggered by Brexit negotiations."
"With its portfolio diversification advantages and comparatively higher returns compared to other asset groups, real estate continues to look appealing as a safe haven for investments. However, since income-producing alternatives are becoming harder to come by in this late-cycle setting, investors are becoming more cautious and disciplined in exiting investments."
The strong demographic fundamentals in Asia Pacific will continue to drive real estate demand. By 2027, the region's urban population will have surpassed 400 million people, while the population of people aged 65 and up will have increased by 146 million people. The e-commerce market in Asia Pacific is expected to reach US$1.6 trillion by 2021.
"Despite the macro concerns, we believe that this region's opportunities will reduce the risks," says Dr. Megan Walters, Head of Asia Pacific Research at JLL. "We believe that this region's opportunities will spur investors and occupiers to look into sectors that have defensive qualities or those that operate on less cyclical demand drivers."
According to JLL, the industry in Asia Pacific will be shaped by five main trends in 2019.
Assets that are 'living' are increasing in value.
With the region's rising urban population, demand for alternative living arrangements such as student housing, co-living, multi-family, nursing homes, and aged care has increased.
These living sectors provide investors with attractive yields, long-term growth potential, and portfolio diversification opportunities. "Because of their efficient use of space, superior building management, and generally higher entry yields, these new sectors are expected to outperform conventional residential properties," Mr. Crow explains. "In Tokyo, for example, returns on aged care range from 11 to 14 percent, while in Singapore, returns range from 8 to 12 percent."
Creating adaptable workspaces to draw talent
Businesses are gradually turning to shared workspaces to encourage employee creativity and win the battle for talent. This renewed emphasis on creating human interactions has resulted in an increase in flexible offices across the country, including co-working and serviced offices.
According to Dr. Walters, "Flexible work spaces could account for 30% of some corporate commercial property portfolios by 2030. This means that market consolidation will become more popular, with landlords and developers creating their own flexible space offerings, forming joint ventures with coworking providers, and considering mergers and acquisitions among coworking brands."
Logistics and data centers are on the rise.
With Asia Pacific leading the world in e-commerce adoption, organizations are under the pressure to develop data storage infrastructure as well as physical retail warehousing facilities.
According to Mr. Crow, "In Asia Pacific, the robust rate of usage is driving increased investor interest in data centers and logistics. These industries will continue to develop, with a lot of money going into emerging markets like China, India, and Indonesia. Meanwhile, the number of logistics hubs in major cities is increasing. The logistics market in Sydney, for example, grew seven-fold between 2015 and 2017."
Shift in the direction of debt exposure
According to Mr. Crow, as banks tighten their lending requirements, this creates an opportunity for non-bank and offshore lenders to join the market, especially in Australia, India, and China. As a result, a growing number of investors are turning to global offshore lenders for flexible debt or equity financing on specific ventures.
Similarly, institutional investors are diversifying their real estate debt portfolios. "Debt investment is one way to reduce risk in a portfolio," Mr. Crow continues, "and investors are constantly searching for ways to use debt to protect themselves from market fluctuations and declining property incomes."
The creation of smart cities
With smart city initiatives gaining traction in Singapore, Japan, South Korea, and Australia, the Asia Pacific region is seeing a growing need to upgrade digital infrastructures in order to increase productivity, sustainability, and improve residents' living conditions.
Dr. Walters elucidates: "Proptech, or the fusion of real estate and technology, is critical to city growth in the future. Smart property creation and management allow robust data collection and analytics, which are both critical for cities to build more livable environments for their growing populations, as smart cities are highly data-driven."