The easing of travel restrictions in parts of Asia will speed up recovery of the real estate sector in the region, experts believe, because it means institutional investors will be getting back on the road in search of deals.
Analysts of the real estate market expect the recovery to happen sooner in the office sector in those established Asia Pacific cities such as Seoul, Melbourne and Singapore that are leading the way in relaxing border controls and restrictions on travel movements.
OFFICES LEADING THE RECOVERY
“With the easing of travel restrictions, investors are now able to travel more frequently to inspect deals and retrace their pre-pandemic steps globally. This will drive higher deal activity as it facilitates due diligence,” Neil Brookes, global head of capital markets at Knight Frank told AsianInvestor.
He added that the re-emergence of US-based investment managers and private equity firms focused on the office sector will drive inbound investments into Asia Pacific, but that interest in retail and hospitality assets should also benefit from recovery of tourism.
Data from Real Capital Analytics showed that transactions in the office sector in Q1 2022 made up about 41% of the total real estate investment volume in the region. The share of industrial investment fell to around 20% for the same quarter from 26% in 2021 due to the lack of portfolio transactions and compressed yields, while hotel deals comprised 13%, up from the 6% average in 2021.
Singapore outperformed the rest of the region with a 21% annual increase in sales of income-earning properties in Q1 2022, according to MSCI’s Asia Pacific Capital Trends report in June, with Korea and Australia coming next. Foreign buyers were responsible for almost half of the $2.3 billion sales in Singapore chalked up in the quarter.
Singapore's major deals included Hong Kong-based private equity PAG’s purchase of Cross Street Exchange for S$810.8 million ($603 million) in January, KKR buying 20 Anson for about S$600 million in May and the June purchase of Westgate Tower by AEW for S$657 million.
Other notable office deals in the region include the Southern Cross office complex in Melbourne (a $1.45 billion Charter Hall deal backed by Singapore’s GIC in April), AlphaDom City Alpharium Tower in Seoul ($853 million by Mastern Asset Management in January), and Darling Quarter in Sydney ($445 million for a half-stake by Allianz Fund in February).
LIFE SCIENCES – A NEW FRONTIER
Another sign of the recovery is the Monday (June 20) announcement by Dutch pension fund manager PGGM of its S$1 billion ($721 million) tie-up with property developer Lendlease to invest in innovation and life-sciences-based real estate assets, particularly in Australia, Japan, and Singapore.
“We are a believer in the long-term prospects for Asia Pacific and thus keep a key allocation to the region,” said Ping Ip, private real estate associate director at PGGM to AsianInvestor.
PGGM has been investing in Asia Pacific since 1998, and manages about €4.5 billion in the region - comprising real estate assets across the major markets - out of a global portfolio of about €19 billion ($20.1 billion).
“We believe the investment in innovation and life science-oriented real estate to be a welcome addition to our portfolio, with great potential for growth in this sector,” said Ip.
However, she does not rule out future expansion into the region as renewable energy, climate tech and green buildings are all part of its environmental, social and governance (ESG) investment strategy.
NICHE OPPORTUNITIES IN SOUTHEAST ASIA
Brookes believes the Southeast Asia emerging markets of Vietnam, Thailand and Indonesia, buoyed by strong consumer demand and low labour costs, show strong potential in industrial estates and warehousing as global manufacturers driven by the need to diversify their supply lines set up shop in these countries.
“With some cities in China being locked down, it is expected that there will be a shift away from China that will benefit other emerging countries in Asia, including Southeast Asian countries,” said Brookes, who singled out Vietnam as a potential beneficiary of investment inflow.
He added that the growth in e-commerce is underpinning the relatively untapped opportunities that Malaysia and Indonesia offer in high-quality logistics assets.