A brave new world: investing beyond the momentary squall - Investment trends and opportunities in APAC real estate markets
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Capital Markets | Asia Pacific A brave new world: investing beyond the momentary squall Investment trends and opportunities in APAC real estate markets August 2021
Opportunities Contents
abound in commercial
real estate
Executive summary
1. Bright prospects ahead
Since the beginning of this year, we have seen a progressive
recovery in the world’s economies, as governments have
adopted dynamic structural policies to manage the challenging
environment. Correspondingly, investment markets have 2. Fewer distressed asset
responded with an upswing, as seen in the surge of investment sales in H1 2021
activities, notably in the commercial real estate market.
According to Real Capital Analytics (RCA), the real estate
investment markets across Asia Pacific had continued its recovery 3. Emerging trends in
in the second quarter of 2021, with year-on-year transaction real estate
volumes rising for a third consecutive quarter, reaching the
USD40 billion mark. The global economic recovery is expected to
pick up momentum in the coming months with the World Bank
4. Strategise with upcoming
forecasting global growth reaching 5.6% this year*, the fastest
investment trends
post-recession pace in 80 years. We believe that this will spur
demand for commercial real estate assets, driven by both swelling
amounts of liquidity and pent-up demand.
5. Opportunities ahead
As the storm blows over, a plethora of opportunities in the
commercial real estate investment market has surfaced. Read on
to find out more about the significant investment trends to come
and where the pockets of investment opportunities lie.
John Marasco
Managing Director
Capital Markets & Investment Services
Australia and New Zealand
Terence Tang
Managing Director
Capital Markets & Investment Services
Asia
All information in this report as of
18 August 2021.
Nick Wilson
Director, Head of Research * Bolt et al. (2018); Kose,
Sugawara, and Terrones (2020);
Capital Markets World Bank.
Asia
2 3
“The outlook for investment markets across Asia
Executive summary Pacific looks promising, in particular, the Australia
and New Zealand region, where we continue to see
a large amount of unplaced capital searching for a
Commercial real estate markets across Asia Pacific are in
recovery mode. However, the pace of recovery varies with
home. This continues to exert downward pressure
different markets and sectors. Some asset classes have been on the yield metrics.”
able to capitalise on fundamental shifts occurring across
the global economy, while others remain under pressure John Marasco
from the effects of a challenging economic environment. Managing Director
Capital Markets & Investment Services
Real estate in non-discretionary sectors like cold chain
Australia and New Zealand
and multifamily have generated good returns, and sectors
benefiting from the technology economy, such as data centres,
logistics and research & development (R&D) business parks
have also outperformed. On the flip side, some real estate
asset classes have underperformed, as international travel
restrictions continue to impact the hospitality sector and the
accelerating shift to e-commerce have dampened brick-and-
mortar retail activity.
Investors, however, are inclined to look beyond any short-term “Investing can no longer take the same approach as
uncertainty and focus on longer-term performance. Investment
volumes are on the rise across almost all major markets and
before, as economic fundamentals and accelerating
sectors, as capital flowing into real estate asset strategies structural changes have transformed the face of real
continues to increase.
estate markets and sectors. Investors will need to
Investment strategies have also been evolving, and portfolio adopt nimble investment strategies that are able to
rebalancing has been contributing to the growth in transaction
volumes across Asia Pacific. Meanwhile, private equity funds
adapt to and evolve with the rapid changes, such as
now hold record levels of liquidity, real estate investment new thematics, sentiment and greenfields.”
trust (REIT) market pricing has improved the acquisition
fundamentals for listed groups, and insurance funds continue
Terence Tang
to expand their presence in the region. Managing Director | Asia
Capital Markets & Investment Services
4 5
1. Bright prospects ahead Alternative asset class transaction volumes
20 10.0%
Real estate transaction volumes in Uneven recovery
Refrigerated, data centre, industrial R&D, self-storage
Age-restricted, senior housing, nursing, other living
Asia Pacific (USD millions) among markets
15 7.5%
Total Transaction volumes across Asia Pacific
1H21 1H20
Medical, office and R&D, business park
have surged to new heights in the first
103,014 79,525 half of 2021, as contracted volumes
10 5.0%
totalled USD103 billion – up 28%
(excludes BTR/Multifamily)
Share of whole market (%)
China compared to the first half of last year, and
exceeding the previous record high set in
30,301 20,996 H1 2019 by 2%. 5 2.5%
(USD billions)
While every market in the region is
recovering at varying speeds, China,
Japan
Australia and Korea have all set new 0 0.0%
record highs in H1 2021. Hong Kong and 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
18,966 23,898 Singapore have witnessed the largest
YTD
percentage growth among the region’s
markets, both of which have seen more
Australia
than double of the levels registered in the
17,785 9,720 first half of 2020. sector witnessing a fall in volumes (-64%) despite REITs are garnering investor interest
having generated good returns. Last year, however,
Japan, on the other hand, has seen a drop Institutional and cross-border investors account
marked a new record for the multifamily sector
South Korea in transaction volumes by 21% in the first for the largest share of transactions in the market,
in Asia Pacific, as there is some degree of base
half of this year, partly due to relatively collectively responsible for more than 55% of
15,587 13,440 healthy volumes in H1 2020, owing to a
effect at work.
all acquisitions. Listed REITs, on the flip side,
small number of mega-deals. Alternative asset classes continue to mature, after have seen their acquisition volumes fall, but the
Hong Kong, setting record volumes in 2020, and we are already recovering REIT market pricing should support
SAR, China
8,051 3,717 Industrial and logistics the seeing healthy deal flow so far this year. Investment further acquisitions in the second half of the year
fastest-recovering sectors volumes of alternative assets now account for 8.5% and bring forward a number of formerly delayed
Singapore of all real estate assets in the region – more than Initial Public Offerings (IPOs).
Across the sectors, the industrial and
6,409 2,619 double of their market share in the period 2014
logistics markets have led the way, to 2019 . This is primarily driven by technology- The outlook for investment volumes for the
registering 70% growth year-on-year. economy sectors like data centres, R&D centres, cold remainder of the year remains positive. Deal
Taiwan
2,571 1,753 The retail market came in a close second, chain and life sciences. Given the growing focus on pipelines are growing, with a number of mega-deals
with transaction volumes growing by these emerging asset classes, there is more room likely to close before the year ends. We expect full-
India 65%. The hotel (+28%) and office (+20%) year volumes in Asia Pacific to exceed 2020 volumes
for more specialised investors to enter this space,
2,382 1,574 markets have also shown improved signs particularly in the data centre and cold chain space. by around 15% to 20%, and this is likely to set a new
Others of liquidity, with only the multifamily record at around USD210 billion.
962 1,808
6 7
2. Fewer distressed Interest rate shifts (1-year % change)
asset sales in H1 2021 0.07 0.61 0.41 0.46 0.34 0.48 0.51 0.15 0.76 0.03 1.01
Large stimulus packages and base rate cuts have pushed yield
curves lower across almost all major markets. More recently,
3-month IBOR change
5-year swap change
inflationary concerns have put upward pressure at the long end
of the yield curve in a number of markets, although this has
momentarily subsided. Five-year swap rates have, for the most
part, increased across the core markets, but remain below their
-0.03 -0.10 -0.61 -0.09 -0.08
pre-COVID-19 levels.
Japan Hong Kong India Singapore China Australia Korea New Zealand
Liquidity provided by the Quantitative Easing programmes
has also helped to stabilise lending margins, but credit
availability towards underperforming asset classes remains
limited. Overall, given the base rate reductions and stable Australia A-rated & BBB-rated bond yield spreads to
lending margins, all-in financing costs remain below their 5-year swap (non-financial)
pre-COVID-19 levels.
250
In the absence of any significant movement in stabilised cap
rates, yield spreads to financing rates have widened and cash
200
on cash yields have improved. The Net Operating Income of
some real estate assets have shifted lower due to operational
Yield spreads/swap rates (bps)
underperformance; however, they are mostly in recovery mode. 150
Lower leverage in this cycle has been a key stabiliser and credit
facilities were at times drawn down to ride out volatility in 2020. 100
As a result, there have been far fewer distressed asset sales
over the course of this cycle, as landlords utilised their available 50
capital management strategies instead of selling down hard
assets. One area where we are seeing potential for asset sales
BBB
AA
0
are from some of the more distressed Chinese developers, who
Jan 2018 Jul 2018 Jan 2019 Jul 2019 Jan 2020 Jul 2020 Jan 2021
at times have been looking at selling down commercial assets
to shore up their primary residential development business.
8 9“Markets are evolving
rapidly and new
opportunities are ever
3. Emerging trends in emerging. In fact, we
real estate have never seen this
much investment
activity coming from
Corporates are now significant on the buy-side and the sell-side, accounting One key area of growth from the corporate side
for 12% of total acquisitions and a record the corporate sector or a has been the surging levels of acquisitions from
market participants
18% of dispositions so far this year. In some focus on redevelopment the technology companies. Many large technology
Insurance companies continue to build their instances, corporates have been using their companies are looking to maintain a level of control
presence in the market as their acquisitions real estate assets as a means to raise capital,
and alternative sectors over their real estate assets and infrastructure, with
increased 85% compared to the same time last pay down debt or reduce their occupancy of this large scale.” a number of acquisitions of data centres, logistics
year. This trend is likely to continue through the footprint. Dentsu in Japan, for example, recently facilities and industrial land sites for development.
second half of the year, with the closing of the announced the sale and leaseback of its Nick Wilson There is also been a number of large acquisitions
Ping An Insurance acquisition of partial stakes USD3 billion headquarters office – the largest- Director, Head of Research by technology companies looking for prime sites
ever single-asset deal in Japan. Conversely, Capital Markets for their headquarters offices or large-scale
in six mixed-use projects in China of a value of
Asia
USD7.2 billion. some corporates are taking the opportunity to R&D facilities. These include a number of asset
acquire assets following favourable business conversions or redevelopment strategies of well-
Corporates have also been playing a larger conditions as well as a drop in financing costs. located assets with redevelopment upside.
role in investment markets in Asia Pacific, both
Corporate acquisitions & dispositions PE funds assets acquired vs assets still owned
20 20% 2,000 100%
10 10% 1,600 80%
0 0 1,200 60%
Assets acquired in the period
Asset retention rate (%)
-10 -10% 800 40%
Share of acquisitons
Share of disposition
Assets still owned
-20 -20% 400 20%
Dispositions
Acquisitions
-30 -30% -30 0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 1H 2021 0–2 years 2–4 years 4–6 years 6–8 years 8–10 years 10+ years
Source: RCA
10 11REITs attracting more investor
interest in APAC
Positive Price-to-Net Asset Value (P/NAV) ratios
A disposal bonanza from private equity acquisition pipeline, given the high probability of indicate that investors are increasingly willing REITs are gaining momentum
asset disposals. to invest in REITs, signifying a recovery in REIT
funds to look out for with heightened activity
market pricing.
Private equity (PE) funds have emerged as the We have undertaken a full study on PE fund assets REIT transaction volumes have fallen over the
largest net acquirer of real estate so far in 2021. and expect that more than 660 commercial assets Weighted P/NAV past 18 months; however, market activity has
Capital raising has been strong over the past few will be sold down over the coming two years, with started to improve in the first half of 2021.
years but has come off from recent highs so far this an additional 350 multifamily assets to also be REITs have seen their listing valuations recover
1.31
year. Liquidity, however, is now at a record level liquidated over the same timeframe. considerably this year, with price-to-net asset
Industrial
of USD46 billion, and we see that PE funds will be value (P/NAV) ratios back in positive territory,
Between 2022 and 2024, around 160 PE funds with a
focusing on capital deployment, moving forward. particularly the industrial and logistics REITs.
primary investment focus on Asia Pacific will mature.
This will help to support acquisitions that are
There is also a forthcoming wave of fund expiries These funds have raised more than USD50 billion
accretive to yield, moving forward, as implied
and we expect PE fund asset disposal volumes to in equity. Taking into account asset appreciation
yields start to dip below market yields.
1.20
accelerate over the next few years. Among the assets and the use of leverage and asset enhancements,
we expect more than USD120 billion in asset sales Multifamily
acquired by PE funds 4 to 6 years ago (between mid- There was also a growing REIT IPO pipeline in
2015 and mid-2017), more than 90% are still within to take place over the next three years. These asset a number of markets that was delayed due to
their investment portfolios. This huge pool of assets sales will make PE funds one of the largest sellers of the onset of COVID-19. We have seen some
will allow incoming investors to identify their future real estate assets in the years to follow. groups more recently return to the IPO table,
1.08
and expect to see more portoflios listing over
Office the coming year.
3-year REIT performance by sector Platform deals have been another key focus
more recently, as managers look to build
80 capabiltiies in new markets and grow their
1.03
assets under management. Blackstone recently
Diversified acquired a 91% stake in SOHO China for an
equity consideration of around USD3.3 billion
40 – a 94% increase on the listing price 3 months
ago. Centuria has also acquired PrimeWest
in Australia for around USD460 million, on an
0
Retail
1.02 implied enterprise multiple (EV/EBITDA) of 22.4
times. Similarly, Dexus has proposed to acquire
APN Group for USD244 million, on an EV/EBITDA
of 23.8 times.
Partial stakes in managers have also been on
0.94
-40
Hotel the radar for some investors, with Samsung
Industrial REITs
acquiring a 25% stake in Savills IM, ARA
Office REITs
Retail REITs
Hotel REITs
increasing its ownership of Kenedix by an
-80
additional 10% to 30%, as well as the proposed
acquisition of real estate fund manager ARA
Aug 2018 Dec 2018 May 2019 Oct 2019 Mar 2020 Aug 2020 Jan 2021 Jun 2021 Source: S&P Market Intelligence
Asset Management by Hong Kong-listed logistics
real estate company ESR Cayman.
12 134. Strategise with upcoming
investment trends
Investment strategies have been shifting more Share of transaction volumes, CBD vs non-CBD
rapidly as COVID-19 has accelerated a number of
growth drivers. Clearly, there has been a larger focus
on logistics real estate, as well as other industrial 65% 63% 65% 60% 57% 61% 52% 63% 54% 51% 48%
uses related to life sciences and technology, i.e., R&D
and data centres.
In fact, the number of unique investors undertaking
acquisitions of industrial real estate has now
overtaken retail investors for the first time last 49% 52%
48% 46%
year. In 2020, there were more than 120 separate 43%
37% 40% 39%
investors active in the Asia Pacific industrial markets 35% 35% 37%
– roughly double the number seen 4 to 8 years ago.
non-CBD
We had previously highlighted the huge investment
CBD
growth in the alternative asset classes; the majority
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
of which was focused on industrial alternatives as YTD
well as office R&D assets.
Non-CBD assets gaining favour Recent accelerating trends are also pushing of mall acquisitions for the purpose of conversion
investors to look at more unique asset conversion into R&D and campus-style office buildings, as well
However, there has also been another area of focus strategies. There has been a noticeable shift in as large repositioning projects to convert these
of alternative asset investments targeted at non- conversion plays targeted at hotels and shopping malls into mixed-use assets. In the Industrial space,
CBD office markets, relative to CBD markets. 2020 centres, with fewer conversions being undertaken technological changes to the sector as well as
and early 2021 have seen roughly half of all office on office assets. A number of noticeable hotel demand for modern Grade A warehouses have led
investments shifting into non-CBD assets. This was acquisitions have also taken place for the purpose of to substantial refurbishment and redevelopment
partly driven by the increasing supply pipelines and conversion to living and multifamily type of assets, potential of ageing stock. Much of the ageing
larger assets being developed in these areas, as as well as for full redevelopment for other uses, stock remains in well-located areas, so end-user
well as more life sciences and business park type particularly evident in China, Japan and Korea. demand for these locations remains strong.
of demand from the end-users. There has also Therefore, we expect that the targeting of brownfield
been much talk about decentralisation of office Growing conversion potential for industrial sites and ageing stock for the purpose of
tenants. While this has not yet materialised in any
retail assets redevelopment and refurbishment will be a growing
meaningful way, there is scope for more flexible theme over the next few years.
workspace operators to turn their focus onto these Retail assets are also being considered for its
decentralised markets. conversion potential, and we have seen a number
14 15PE fund asset dispositions offer areas like data centres, logistics, life sciences
investment opportunities and living-based strategies. This shift in
5. Opportunities
strategies will inject products into the market
Emerging sell-side drivers will support from those looking to rebalance away from
ahead
increasing transaction volumes over the legacy assets. The presence of mega-deals,
coming year. One of the primary drivers those of a value of more than USD500 million,
of this is the large pool of PE funds which is also supporting more deal flow across the
will be maturing over the next three region. USD26 billion of transactions in this
years. The liquidation period of several PE market segment has already taken place in
Looking ahead at the remainder of the year
funds has already commenced but selling 2021, and this is equivalent to around 80%
and 2022, we see several key investment activity will only start to accelerate over the of the 2020 full-year transaction volume. In
themes that should pan out across the coming year, and this should provide entry addition, a focus on new markets and sectors
opportunities for investors. In addition, large- is also starting to push investors towards
various markets and sectors:
scale divestments coming from a number inorganic growth strategies; so we expect
of Chinese developers will also offer core targeted mergers and acquisitions activity
investment opportunities, as the ‘three red to drive higher transaction volumes, moving
lines’ guidance from the Chinese regulators forward. Besides this, specialist operators and
put pressure on developers to shore up their developers will be a key target for investors
PE funds’ with upcoming maturities will be
1
balance sheets and reduce debt. with long-term plans to build their capabilities
looking to dispose their real estate assets in in certain high-growth sectors and markets.
time to come, as well as large-scale divestments Pricing recovery and potential
At the market level, most sectors and cities
in the pipeline of Chinese developers. IPOs to lift REITs
are seeing their rental cycles bottoming
The REIT market has seen a strong recovery, out over the course of the year, with some
with the Pan Asia REIT Index up 22% in the office markets like Singapore and Auckland
first half of this year, compared to the same starting to see potential for rental growth
period a year ago. Sector-level performance returning to the equation. For the most part,
A recovery in REIT markets and the
2
has been divergent, but industrial REITs office and retail supply pipelines are well
contained, and rental growth will be driven by
continued real estate asset allocations from have retained the strongest level of pricing
and continue to account for the majority a recovery in the underlying occupier market.
pension funds, sovereign wealth funds The logistics sector, in general, is seeing very
of the acquisition activities by the REITs.
and insurance funds. Improving financial metrics for most REITs are strong demand drivers currently, and higher
starting to support further acquisitions and demand is also matched by higher levels of
dispositions, and this is likely to draw more supply. By and large, core markets are already
portfolio managers into potential IPOs over showing signs of rental growth, particularly
the coming year. in some submarkets across China, Australia
and Singapore.
3
Large-scale redevelopment strategies to further Shift in investment strategies to
Indeed, we have started to see light at the
support buy-side demand, as investor activity drive buy-side demand end of the tunnel, and Asia Pacific’s real
evolves with the rapid changes in the market. estate investment markets are looking
We have also witnessed changing investor
ever-promising, with an array of viable
strategies following the economic recovery
opportunities. You just need to know
from COVID-19. Investors are reshaping their
where to look.
portfolios to fit new strategies targeted at
16 17For further information, contact our
Capital Markets Experts:
Terence Tang Piyush Gupta
Managing Director | Asia Managing Director | India
Capital Markets & Investment Services Capital Markets & Investment Services
terence.tang@colliers.com piyush.gupta@colliers.com
John Marasco Hideki Ota
Managing Director | Head of Capital Markets | Japan
Australia & New Zealand Capital Markets & Investment Services
Capital Markets & Investment Services hideki.ota@colliers.com
john.marasco@colliers.com
Harold Lee
John Howald Senior Director | Korea
Executive Director | Asia Pacific Capital Markets & Investment Services
International Capital harold.lee@colliers.com
john.howald@colliers.com
Tang Wei Leng
Betty Wong Managing Director | Singapore
Managing Director | China weileng.tang@colliers.com
Capital Markets & Investment Services
betty.wong@colliers.com Derek Huang
Executive Director | Taiwan
Nigel Smith Capital Markets & Investment Services
Managing Director | Hong Kong derek.huang@colliers.com
nigel.smith@colliers.com
Research Experts:
Nicholas Wilson Joanne Henderson
Head of Research | Asia National Director | Research |
Capital Markets Australia
nicholas.wilson@colliers.com joanne.henderson@colliers.com
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