Investors looking to expand and diversify their property portfolios look set to allocate more funds into multifamily residential buildings in the Asia-Pacific region in the coming year, predicts real estate research and consulting firm JLL.

The company said in a new piece of research that multifamily, or build-to-rent, investments in the region reached $6.7 billion in the first half of the year, close to the volume for the whole of 2019, as investors looked for more defensive forms of investment in the property asset class. This compared to $81 billion in global transactions, almost three times the amount for all of 2019.

Multi-family buildings encapsulate almost every part of the human lifespan, from student housing and co-living up to senior living and aged care.

JLL said that regionally, Japan accounted for much of the increase this year, courtesy of the fact the country accounts for over 95% of the available multifamily units in Asia Pacific. However, countries such as China and Australia look set to see more capacity become available soon. 

“Asia Pacific’s multifamily sector has solidified its status as a structural play for global investors,” said Regina Lim, head of capital markets research for Asia Pacific at JLL.

“Investors understand that multifamily demand will be driven by both demographic shifts and institutional support, which will ensure that fundraising will further accelerate in … Japan and emerging renting markets like China, Australia and Korea.”

DIVERSIFICATION APPEAL

Multifamily investments are somewhat fringe to traditional institutional investors, who typically prefer to focus on investing in prime commercial buildings in major cities. But the Covid-19 pandemic has decimated businesses and corporate activity, causing many businesses to go bust or downscale operations. Many others have had their staff work at home, leaving entire offices virtually empty.

In contrast, the need for rental properties continued to rise, almost irrespective of the pandemic. JLL noted that Asia Pacific cities’ population are set to grow by 24% from 2018 to 2030, with 45 million people moving to cities annually.

Plus 55% of Asia Pacific’s total population are aged under 35, and younger professionals have increasingly struggled to buy homes in increasingly expensive cities. As a result, in Australia for example, the proportion of renters has risen from 30% to 33% over the past decade.

Meanwhile asset owners have increasingly been seeking to raise their alternative asset investments, in a search for yield as traditional fixed income invstments drop on the back of interest rate cuts to historic lows. Real estate is a key alternative asset class, but the mixture of increased competition to find assets and the eroding appeal of prime commercial real estate has led investors to become more willing to look to other forms of property.

One major beneficiary has been logistics and data centre assets, but multifamily buildings also look set to benefit, said JLL. It added that the sub-asset class is “unlikely to retract as much as others during a downturn and may bounce back more quickly during the recovery, potentially lessening capital decline”.

As a result, JLL argued that multifamily investments offer diversification appeal away from more traditional real estate areas, and that “investors will benefit from its structural rather than cyclical nature, potentially reducing overall portfolio volatility and enhancing risk-adjusted return[s]”.

ROOM FOR RETURNS

While Japan is set to remain the dominant market for some time to come, JLL said there is additional multifamily building capacity set to emerge from countries such as China and Australia.

“We expect ongoing government policy changes to further support renters, demonstrated recently by China’s policies to create 750,000 rental apartments and Australia’s amendment of tax laws to facilitate new projects,” said Lim.

“There is room for yield compression in Asia as the market matures. In other cities outside Asia, multi-family yields are already below office yields.”

There are certainly signs of more multifamily investment vehicles to come. JLL said multifamily and build-to-rent core funds “raised three times as much capital in the first half of 2020 as in the whole of 2019. We expect new funds to be raised for South Korea and Australia, increasing the momentum of these markets”.