Real estate outlook 2022: niche asset classes boost yields
Historically, the most favoured sectors in Asia Pacific (Apac) real estate markets have been the office and retail sectors, which currently represent some 66% of investor portfolios in the region, according to the latest Urban Land Institute (ULI) report. For 2022, experts are seeing more potential in Australia, Japan, and South Korea under different niche sectors.
South Korean logistics are still under-supplied, with a concentrated population around the Seoul basin and both domestic and overseas occupiers looking to penetrate the market. Across Apac, sectors such as logistics, data centres, life science, and multifamily continue to be highly sought after, given their income stability and sector tailwinds, according to Louise Kavanagh, chief investment officer and head of fund management for Apac at Nuveen Real Estate.
"Niche sectors will offer a way to eke out higher returns in the short term, [including] those involved in telecommunications, pharma, biotech, new energy, data, ecommerce,” Kavanagh said. “[Same goes for sectors] focusing on demographic shifts like the need for retirement living and care homes in markets like Japan and Australia, where there are large [aging] populations with discretionary spending capacities."
FOCUS ON RECOVERY
“Australia looks well positioned for a strong recovery over the coming years. With some of the fastest growing cities in the region, and having seen a larger-than-average price correction, cities like Melbourne and Sydney look well positioned," Simon Wallace, co-head of real estate research at DWS, told AsianInvestor.
"Elsewhere in the region, we see potential for outperformance in fast growing cities like Fukuoka, regional logistics markets such as Busan, and emerging locations like Pangyo in Seoul and North Sydney,” he added.
He believes the market is now in a period of recovery, experiencing both rental growth and yield compression. "We see this recovery stretching into 2022 and beyond, as a wall of capital pivoting towards the sector,” Wallace said.
ON THE ALERT
Occupier risk has always been a concern, but the risk will be even higher as we emerge from the pandemic.
“The past two years have put immense strain on many businesses, but unlike previous recessions, we have not yet seen a surge in insolvencies. This is however clearly a risk, particularly as support mechanisms are wound down. It’s even more important today to fully understand our tenants, and the quality of the income underpinning our portfolios,” Wallace continued.
In the long term, Wallace doesn’t believe the pandemic has fundamentally shifted the outlook for real estate.
“Factors such as ecommerce, remote working, and suburban migration have been shaping demand for years, and will continue to do so. However, these trends have been accelerated and therefore it is important that our portfolios are well positioned for these structural changes. At a global level, those portfolios with an overweight position in residential [assets] and logistics certainly look to be well placed for the coming years,” he said.
SECTOR BY SECTOR
Logistics assets have strongly outperformed in Apac and will continue to do so compared to Europe and North America, while retail assets have uniformly underperformed, particularly in the US and Europe.
This pattern is in stark contrast to the period just after the global financial crisis, when return spreads were mainly along geographic lines and by asset quality, according to another Nuveen report.
The report noted that there will be less performance divergence among property types going forward, since investment performance differentials have been along sector lines in the last two years.
The preference for real estate has also been reflected in hiring sprees and rapid acquisitions.
According to an ANREV/PwC report on real estate fund managers, 42% of respondents expected their headcount to be stable or to increase, indicating a positive outlook for the sector.
On December 13, Nuveen Real Estate (AUM: $144 billion) acquired a 50% interest in One George Street, a Grade A office asset in Singapore, for $472 million. It also expanded the Apac team by adding David Chan as head of real estate transactions for Greater China in October.
Nuveen (AUM: $1.3 trillion) manages approximately $270 billion for its parent company, the US-based Teachers’ Insurance and Annuity Association.
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