As many markets across Asia usher in the Lunar New Year, the Year of the Tiger is expected to see some downturns throughout 2022. Some of the many risks facing investors include the possibility of another variant of Covid -19 as well as intense competition. driving up capital values in a cash-filled market.
But as the Chinese saying goes, “不入虎穴，焉得虎子”, or “you can’t catch a tiger unless you venture into its lair”, investors are recognizing the opportunities in Asian commercial real estate in the midst of unpredictability.
The sector looks set for a record year for investment as many governments look to an endemic state of Covid-19, and property investors prepare to pour more capital into the sector.
All-time highs for commercial real estate investment in Asia-Pacific
According to CBRE 2022 Asia-Pacific Investor Intentions SurveySentiment towards regional commercial real estate remains positive, with around 60% of investors planning to buy more this year compared to 2021.
The overall optimistic mood has led CBRE to predict that total investment revenue will grow by 5% to 10%, to around $150 billion in 2022. If that happens, it will be an all-time high for volume. annual report of commercial real estate transactions in Asia. Pacific region.
The 535 survey respondents, who range from institutional to private investors, said they were looking for value-added opportunities, which involves upgrading or redeveloping existing properties in good locations to meet future ESG standards. , as well as reposition underutilized facilities to meet their needs. to faster growing markets.
Tokyo, Shanghai and Singapore are the most favored cities for cross-border investment, while logistics and offices top the list of preferred sub-sectors (Figure 1). Factors such as the availability of low-cost financing, prolonged low interest rates, high liquidity and a large volume of multi-family assets have helped Tokyo maintain its status as the most popular investment city for a third consecutive year.
Singapore remains a major destination for cross-border investors, including those from Japan, Taiwan and beyond Asia-Pacific. Meanwhile, growing investor interest has seen Beijing and Shanghai enter the top five favorite investment destinations this year. Both markets continue to attract a considerable amount of Asian capital, particularly from Singapore and Hong Kong.
Figure 1: Top 10 Preferred Cities for Cross-Border Investments
Source: 2022 Asia-Pacific Investor Intentions Survey, CBRE Research
Sources of demand
While higher interest rates will dampen demand for real estate in some quarters, this is offset by the scarcity of assets such as modern logistics facilities and Class A office space in Asia Pacific. Indeed, real estate has always been one of the best hedges in times of rising inflation.
Strong investment activity by closed-end real estate funds, real estate investment trusts (REITs) and institutional investors – many of whom suspended acquisitions at the start of Covid-19 in 2020 – should drive the recovery in demand. CBRE estimates that institutions in the region have up to $500 billion in capital on their balance sheets awaiting deployment.
International investors want to increase their exposure to Asian real estate to capture the region’s growth and diversify their portfolio. In the region, investors from Singapore, Australia and South Korea are the most eager to invest abroad.
As for mainland China, demand for commercial properties, particularly among insurers, continues to be strong, even as investors are increasingly concerned about residential developers.
The logistics and office sectors lead the way
CBRE found that while logistics assets remain the most popular sub-sector for real estate investors, interest has waned compared to the 2021 survey due to rising capital values. In addition, logistics rents in Asia-Pacific have increased by 33% since 2010, which limits the potential for further increases in the coming years (Figure 2).
Figure 2: Preferred investment sector in 2022
Source: Asia-Pacific Investor Intentions Survey, CBRE Research, December 2021
By contrast, the appetite for office space has strengthened over the past year, with “flight-to-quality” relocations and demand for space in newer, greener buildings which should help the market. of offices in the region to recover from its longest downward rental cycle in 20 years.
Many offices in Asia Pacific have reopened or are in the process of welcoming returning employees. Although the Omicron variant has slowed the reopening process, it is unlikely to derail the recovery in office demand as businesses gain confidence in returning to the office.
Initial feedback from North Asian businesses indicates that most will continue to work in the office, but with occupancy limits or shift rotations.
For the whole of 2022, CBRE expects Class A office rents to increase by around 1% on average, led by Singapore where rents are expected to increase by more than 10%.
Data centers lead the alternative sector, while cold storage and healthcare gain ground
Investors continue to target alternative sectors that have benefited from pandemic-induced structural changes.
Data centers remain the top priority (Figure 3), with $4.2 billion in data center properties changing hands in Asia Pacific in 2021, up 88% year-on-year. Interest in cold storage has also strengthened, with CBRE observing growing investment demand from cold storage-related occupants in 2021.
Figure 3: Investor interest in alternative sectors by property type
Source: 2022 Asia-Pacific Investor Intentions Survey, CBRE Research
As life science companies continue to perform well, healthcare-related assets such as R&D business parks and medical buildings are also attracting investor interest. Investors should identify potential asset divestments from pharmaceutical companies that seek to recycle capital for future R&D or reduce interest-bearing debt.
ESG on the agenda
ESG is also gaining ground, with more and more large investors seeking to integrate ESG criteria into their investments. Adoption is driven not only by the need to comply with regulatory requirements, but also to preserve future asset value and meet occupant demands.
Approaches to implementing ESG strategies include prioritizing the purchase of buildings with green certifications and retrofitting existing properties to improve energy efficiency, water use and well-being.
We see more and more investors looking to access green loans or issue green bonds to fund such initiatives. Data from Bloomberg shows that the sustainable debt market in Asia-Pacific has experienced strong growth in recent years, with more than $200 billion in ESG issuance recorded in 2021. Buildings accounting for around 23% of bond proceeds investors in Asia-Pacific are clearly aware of the importance of sustainability and will increasingly rely on green finance to mitigate climate-related risks that could potentially impact their assets.
Load in advance
In Chinese astrology, the tiger is one of the animals most closely associated with “yang”, or strong and positive energies.
CBRE expects the region’s economic recovery to reflect this positivity and pick up speed in the coming months, rewarding investors optimistic about Asian commercial real estate.
For more detailed information on the buying appetite of surveyed Asia-Pacific investors and their preferred strategies, sectors and real estate markets for 2022, Click here.