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CBRE Research
Asia Pacific Investor Intentions Survey 2018
Executive Summary
04
Real estate remains an attractive asset
class
05
Key trends to watch
12
Respondent’s profile and
22
survey methodology
© 2018 CBRE, INC. CBRE RESEARCH | 2
Asia Pacific Investor Intentions Survey 2018 © 2018 CBRE, INC. CBRE RESEARCH | 3
Asia Pacific Investor Intentions Survey 2018
EXECUTIVE SUMMARY
• Investor appetite for Asia Pacific real estate remains robust in 2018, driven by the twin objectives of securing stable income streams and asset class
diversification.
• While concerns about potential global and local economic shocks weakened for the second consecutive year, investors are more concerned
about higher property prices.
• The high price of core assets and search for higher returns continues to drive investors towards core-plus/good secondary and value-added assets.
This year marked the first time that value-added has overtaken prime core as the most preferred asset.
• Investor focus is broadening away from the traditional preferred markets of Shanghai, Sydney and Tokyo. Several cities are attracting attention, led
by Singapore, Melbourne, Brisbane and regional cities in China and Japan.
• The survey found narrower return expectations among different strategies, pointing to more competition for assets offering high single digit
unlevered returns.
• The industrial and logistics sector is seeing a substantial increase in investor interest, driven by structural changes including e-commerce growth and
the development of modern logistics facilities into an institutional investment product. Investor demand for multi-family owing to high housing prices
and declining home ownership affordability across the region.
• With occupiers increasingly demanding flexible leasing terms and space usage, many investors hold the view that co-working is the future of office
work environment and an amenity for tenants. Most investors believe that up to 20% is the ideal proportion of co-working space in a single office
building to enhance its value.
• Although Asian outbound investment continues to eclipse previous records and Chinese investors still comprise the largest source of capital,
Chinese outbound investment is expected to slow this year.
© 2018 CBRE, INC. CBRE RESEARCH | 4
REAL ESTATE REMAINS AN ATTRACTIVE ASSET CLASS
Asia Pacific Investor Intentions Survey 2018
STRONG INVESTOR APPETITE FOR REAL ESTATE
Investor appetite for Asia Pacific real estate Figure 1: Purchasing activity intentions over the past three years
remains robust. An overwhelming 92% of
respondents indicate that their investment
activity in 2018 will be the same or greater 100%
compared to 2017.
92%
Real estate fund managers display stronger 84%
intentions to purchase more this year, a finding 80%
supported by CBRE Research’s The Next Wave 80%
of Capital Deployment report published in
January 2018, which estimated that
approximately US$53 billion of real estate private
equity capital will be deployed into Asia Pacific
60%
% of respondents
real estate by 2020.
40%
20%
0%
2016 2017 2018
Buy more About the same Buy less
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2016, 2017 & 2018
© 2018 CBRE, INC. CBRE RESEARCH | 6Asia Pacific Investor Intentions Survey 2018
DRIVEN BY STABLE INCOME STREAMS AND RISK DIVERSIFICATION
Investor demand for real estate is being motivated Figure 2: Main motivation for investing in real estate compared to last year
by the objective of securing stable income streams
and asset class diversification.
In comparison with other asset classes including
equities, bonds, direct real estate and real estate
securities, direct real estate has provided more
stable returns over the past decade while also
being less volatile. This, together with the higher
volatility in equities and bonds witnessed since the
beginning of this year, is strengthening investor 27% 26% 26%
appetite for direct real estate investment.
19% 18%
As interest rates gradually move into the upward
cycle, there will be limited room for further yield
compression to drive value growth. For the second
consecutive year, less investors selected capital
value growth as the major motivation to invest in 3%
real estate.
Asset class diversification Stability of income stream Capital value growth
2017 2018
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2017 & 2018
© 2018 CBRE, INC. CBRE RESEARCH | 7Asia Pacific Investor Intentions Survey 2018
INVESTORS’ CONCERNS SHIFT TOWARDS PROPERTY PRICING
The improved global and regional economic Figure 3: Greatest threat to property markets 2017 - 2018
outlook is fostering a more optimistic attitude
among investors. Several export-orientated
economies in the region including China, Japan,
Hong Kong, South Korea and Singapore recorded Global and local economic shock
better-than-expected economic growth last year
thanks to the recovery of global trade.
Concern about potential global and local
Property is overpriced
economic shocks weakened for the second
consecutive year. In contrast, investors are more
concerned about property prices. Rising interest
rates are expected to place pressure on asset
prices, especially now that property yields have
Faster than expected rises in interest rates
already moved below pre-crisis levels and the gap
between property yields and long-term
government bond yields has narrowed further.
Global political instability
2018
Overbuilding leading to excess supply
2017
0% 10% 20% 30% 40% 50% 60%
% of respondents
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2017 & 2018
© 2018 CBRE, INC. CBRE RESEARCH | 8Asia Pacific Investor Intentions Survey 2018
STOCK IS AVAILABLE BUT PRICING IS HARD TO JUSTIFY
The limited availability of product and asset pricing Figure 4: Biggest obstacle to acquiring assets over the past three years
have traditionally been the major obstacles facing
real estate investors. This year, investors displayed
greater concern about high asset prices amid what Asset Pricing Asset Availability
is still an intensely competitive market for prime
commercial real estate in Asia Pacific.
The investor pool continues to broaden, and now
44%
consists of traditional players such as property
38%
companies, REITs and real estate funds, along with
institutional capital and high net worth investors
looking for asset diversification.
35%
Concern about the availability of stock weakened
this year, with more investors indicating that they
are willing to sell. However, investors still find it hard
to justify current pricing.
24%
CBRE Research foresees that slower rental growth
expected in 2018, together with the expectation of
higher interest rates, could prompt investors to
adopt a less aggressive stance towards 18%
underwriting. 16%
2016 2017 2018
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2016, 2017 & 2018
1 Institutional capital includes insurance companies, pension funds and sovereign wealth funds
© 2018 CBRE, INC. CBRE RESEARCH | 9Asia Pacific Investor Intentions Survey 2018 INVESTORS FOCUS ON CORE-PLUS AND VALUE-ADDED The high price of core assets and search for higher returns continues to drive investors towards core-plus/good secondary, which entails investing in prime assets in non-core areas or non-prime assets in core areas, and value-added assets. This year’s survey marked the first time that value-added has overtaken core as the most preferred asset. Investors are exploring different ways to create value through asset enhancement, such as incorporating retail elements or rent-paying amenities into office buildings. Other strategies include upgrading through interior and exterior renovation and conversion to alternative use. Figure 5: Preferred investment strategy 2016 - 2018 Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2016, 2017 & 2018 © 2018 CBRE, INC. CBRE RESEARCH | 10
Asia Pacific Investor Intentions Survey 2018
STRONGER INTEREST IN SINGAPORE, MELBOURNE AND REGIONAL
CITIES IN JAPAN AND CHINA
Figure 6: Top ten preferred cities for
investment (cross-border* only) Japan remains the top destination for investment, with Tokyo
ranking as the most preferred city. Investors are also displaying
strong interest in regional cities such as Osaka and Fukuoka.
Both cities offer solid fundamentals as well as higher entry
yields.
Melbourne eclipsed Sydney as the most attractive city in
Australia, a result due to its stronger rental growth supported
by tight vacancy. Brisbane received stronger interest from
cross-border investors considering counter cyclical plays, with
office rents recently bottoming-out after a five-year correction
and expected to recover over the next two years.
The office market recovery helped propel Singapore to
among the top three destinations for cross-border investors for
the first time since the survey began in 2014. As Grade A assets
are scarce and aggressively priced, investors are focusing on
office properties with upgrading potential as Grade A rents will
continue to grow.
Shanghai continues to be the most desired market in China,
with transaction volume rising to an historical high in 2017. Tier II
cities with strong fundamentals such as Hangzhou, Nanjing
and Chengdu are also gaining more traction from investors.
Note: *Cross border refers to respondents domiciled in the different country as the
most attractive destination selected
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2018
© 2018 CBRE, INC. CBRE RESEARCH | 11KEY TRENDS TO WATCH
Asia Pacific Investor Intentions Survey 2018
#1: NARROWER RETURN EXPECTATIONS AMONG DIFFERENT
STRATEGIES
This year’s survey asked investors to estimate total Figure 10: Investors’ views of total unlevered total returns available in Asia Pacific
unlevered returns available in the Asia Pacific real
estate market. The results indicated narrower 3-6% 6-9% 9-12%
1-3% 12%+
return expectations among different strategies.
Core / core-plus investors estimate most available Core/Core-plus
returns at 3-6%, while value-added investors
expect 6-9%. Opportunistic investors anticipate 6-
12%. The low yield environment and overlapping
investment strategies mean that these
expectations are below those that were held
previously. Value-added
CBRE Research advises investors to consider that
there will be more competition for assets offering
a return profile of around 6-9%. High-risk profile
investors are seeking value-added assets as a low
risk opportunistic strategy to achieve target Opportunistic
returns.
Legend
Less available Most available
Note: ^Unlevered total returns (average annual over 3 years)
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2018
© 2018 CBRE, INC. CBRE RESEARCH | 13Asia Pacific Investor Intentions Survey 2018
#2: A THEMATIC SECTOR FOCUS
The industrial and logistics sector is seeing an Figure 11: Preferred sectors for investment 2016 - 2018
increase in investor interest, largely at the
expense of retail. This is being driven by structural
changes including e-commerce growth and the
40%
development of modern logistics facilities into an
institutional investment product.
E-commerce High housing prices
growth driving creating demand
interest in logistics for rental
Investor appetite for multi-family is rising as high
housing prices create strong and stable demand assets apartments
for rental accommodation. Japan has long 30%
been the sole destination for multi-family
investment in Asia Pacific, but China is beginning
% of respondents
to offer considerable opportunities, supported by
government initiatives to develop the rental
housing market. Australia is also a potential
destination for the multi-family sector, with 20%
fundamentals appearing attractive for both
domestic and international investors.
10%
0%
Office Industrial & Logistics Retail Multifamily Hotels
2016 2017 2018
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2016, 2017 & 2018
© 2018 CBRE, INC. CBRE RESEARCH | 14Asia Pacific Investor Intentions Survey 2018
HIGH HOUSING PRICES DRIVE DEMAND FOR MULTI-FAMILY
The jump in popularity of multi-family is Figure 12: Millennials’ attitudes toward renting property
being driven by declining homeownership
affordability. Surging property prices are
63%
outstripping wage growth and making it
difficult for Asia Pacific millennials to
accumulate the necessary capital to buy
their own home. 63% of respondents to
CBRE Research’s Asia Pacific Millennials
Survey published in 2016 said that they were agreed that this
forced to rent homes due to being unable generation is forced to
to buy them. rent as buying a
property is out of reach
Median housing prices in tier I cities in Asia for most
Pacific are more than 10 times greater than
average household incomes. The higher the
price multiple to income, the more likely it is
for millennials to either live at home with
their parents or rent accommodation. Figure 13: Median housing price to annual household income ratio
Some investors are already exploring rental
apartment opportunities in Beijing, Shanghai
and Hong Kong, as these markets have a
high housing price to income ratio
compared to other tier-1 cities in the region.
Target end-users are typically young
professionals who have been working for
two to three years.
Source: Demographia, Q3 2015, MSCI, December 2015, Asia Pacific Millennials Survey, CBRE Research, October 2016
© 2018 CBRE, INC. CBRE RESEARCH | 15Asia Pacific Investor Intentions Survey 2018
INTEREST IN NICHE SECTORS IS RISING
Investor demand for niche sectors is growing Figure 14: Top five alternative sectors among investors
further due to rapid structural changes,
relatively higher initial yields and comparative Major country focus
immunity to real estate cycles.
Demographic changes are piquing investors’ Retirement
Living
interest in retirement living, healthcare and
student accommodation. Ageing populations
in Japan and China will create more demand
for retirement living and trigger demand for Healthcare
healthcare. Singapore is another potential
market for healthcare due to its status as a
medical tourism hub in Southeast Asia.
Opportunities to invest in student
accommodation lie mainly in Australia. Data Centre
Interest in data centres increased significantly
in this year’s survey, amid rapid growth in data Real Estate
usage. Opportunities to acquire data centres Debt
mainly exist in markets with large populations
such as China, India and Japan, while
Singapore holds considerable appeal as a
regional focal point for Southeast Asia. Student Living
Real estate debt is generating stronger interest 0% 5% 10% 15% 20% 25%
among investors after weakening in last year’s
survey. The coming years will see significant
2018 2017 2016
debt refinancing pressure, particularly in
China, where US$75 billion of corporate bonds
will need to be refinanced by listed Chinese
real estate companies between 2018-2020. Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2016, 2017 & 2018
© 2018 CBRE, INC. CBRE RESEARCH | 16Asia Pacific Investor Intentions Survey 2018
#3: CO-WORKING EMERGES AS IMPORTANT NEW TREND
Figure 16: Occupier trends that investors believe have the most Figure 17: Locations where occupiers intend to increase their
impact on real estate value space over the next two years
Flexible space 42% Office in major business
districts
Diversification from traditional Office in decentralised
office/retail properties locations
Smart buildings Co-working centre 33%
Co-living CBD office
Experiential retail Campus
Last-mile logistic Serviced office
Automation Business park
0% 10% 20% 30% 40% 50% 0% 10% 20% 30% 40% 50%
With capital value growth increasingly being driven by income growth, it is essential that investors gain a thorough understanding of occupier
requirements. When asked to identify the occupier trends exerting the greatest impact on real estate value, investors selected space that can be
procured quickly, with little capital investment and at very flexible terms.
This finding aligns with occupiers’ naming co-working centres as their third most preferred location for expansion over the next two years. Occupiers
are no longer bound to CBD offices when considering new space, with their growing preference for flexible space increasingly being reflected by
actual office take up in major Asia Pacific office markets.
Source: Asia Pacific Occupier Survey, CBRE Research, March 2018, Asia Pacific Investor Intentions Survey 2018, CBRE Research, March 2018
© 2018 CBRE, INC. CBRE RESEARCH | 17Asia Pacific Investor Intentions Survey 2018
INVESTORS BELIEVE FLEXIBLE SPACE IS THE FUTURE
With occupiers increasingly demanding Figure 18: Why does co-working appeal to investors?
flexible leasing terms and space usage,
many investors hold the view that flexible
space is the future of office work
environment. Future of office work 32%
Some owners are offering co-working as an
amenity for existing tenants in the same
building, providing occupiers with the
flexibility to take space both on a traditional
lease and also on a co-working basis.
In general, investors looking to gain their
An amenity for
tenants 28%
exposure to the co-working trend intend to
partner with third-party co-working operators
as they are still evaluating and testing the
sustainability of the flexible space concept.
Property companies are opting to develop
20%
and operate their own co-working brands as Enhance long term
an amenity and component of their overall
tenant mix. Examples include Swire
building income
Properties’ Blueprint in Taikoo Place in Hong
Kong and SOHO China’s SOHO 3Q in its
office portfolio in Beijing and Shanghai.
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2018
© 2018 CBRE, INC. CBRE RESEARCH | 18Asia Pacific Investor Intentions Survey 2018
UP TO 20% IS THE OPTIMAL PERCENTAGE OF CO-WORKING SPACE IN
AN OFFICE BUILDING TO ENHANCE ITS VALUE
Most investors believe that up to 20% is the Figure 19: What proportion of co-working space impacts building value?
ideal proportion of co-working space in a
single office building to enhance its value. If
more than 40% of space in a single building is
allocated to co-working, investors believe its
value will be negatively affected.
Although some lower grade office buildings
have recorded value appreciation after
being repositioned to co-working, overall
investors are unwilling to allocate too much
space to this amenity. Only 39% of co-working
operators are profitable globally.
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2018
© 2018 CBRE, INC. CBRE RESEARCH | 19Asia Pacific Investor Intentions Survey 2018
#4: POTENTIAL SLOWDOWN OF CHINESE OUTBOUND INVESTMENT
Although Asian outbound investment continues Figure 20: Chinese outbound investment intentions 2017 vs 2018
to eclipse previous records and Chinese
investors still comprise the largest source of
capital, CBRE Research expects to see a
continuation of the slowdown in Chinese
outbound investment first witnessed in H2 2017 More than the amount in 2017
following the introduction of new capital
controls.
This year’s survey indicates that Chinese
The same amount as in 2017
investors are less keen to invest overseas in 2018.
While overall interest remains reasonably firm,
fewer investors intend to invest more than they
did in 2017. Government scrutiny of overseas
real estate acquisitions will continue this year,
with another set of capital controls coming into Less than the amount in 2017
effect in March 2018. Real estate investment will
subject to an additional layer of examination.
CBRE Research expects to see a stronger focus No intentions to invest oversesas
on Belt & Road countries and industry-related
asset classes such as warehouses, industrial
parks and ports, supported by more flexible
regulatory treatment. Redeploying offshore 0% 10% 20% 30% 40% 50% 60% 70%
capital is expected to drive some investment
transactions, but any purchases will be 2018 2017
considered carefully as they will also be subject
to closer regulatory scrutiny.
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2018
© 2018 CBRE, INC. CBRE RESEARCH | 20Asia Pacific Investor Intentions Survey 2018
CONCLUSION
Although asset pricing poses a major obstacle,
“Despite high valuations, investors remain keen to purchase real estate
for risk diversification. Investors’ focus is on
property remains an income growth as capital value appreciation
will increasingly be driven by income growth.
attractive asset class given The high price of core assets and search for
its stability and risk higher returns will continue to drive investors
towards core-plus/good secondary and value-
diversification. Investors in added assets. Investors are set to shift their
focus away from the traditionally preferred
the Asia Pacific real estate markets of Shanghai, Sydney and Tokyo to other
locations including Singapore, Melbourne,
market will display strong Brisbane and regional cities in China and
Japan.
demand in 2018” Other key trends this year will include investors
reducing their return expectations; a more
thematic sector focus; stronger interest in co-
working; and the continued slowdown in
Chinese outbound investment.
© 2018 CBRE, INC. CBRE RESEARCH | 21SURVEY PROFILE
Asia Pacific Investor Intentions Survey 2018
RESPONDENT’S PROFILE & SURVEY METHODOLOGY
The fifth annual CBRE Investor Intentions Survey Figure 21: Profile of respondents
focuses on the forward looking views of real
estate investors in Asia Pacific and was carried
out online between 15 November 2017 and 31
January 2018.
A total of 366 responses were received. 82% of
respondents were companies domiciled in Asia
Pacific and the other 18% were domiciled
primarily in Western Europe, the Middle East and
North America.
For the purpose of analysis, CBRE Research
categorised some investors into groups. These
included:
Funds or asset managers (35% of respondents)
and private equity firms (4%) which collectively
accounted for 39% of respondents.
Listed property companies & listed REITs (15%),
Developers (13%), and private property
companies & unlisted REITs (11%), which
collectively accounted for 39% of respondents.
Sovereign wealth funds, insurance companies,
pension funds and family offices, which
collectively accounted for 13% of respondents.
CBRE Research used the broad categorisation Note:
Real estate funds include funds or asset managers and private equity firms
“investor” to denote this group.
Investor includes insurance company, pension fund, sovereign wealth fund and private individual investors / family office.
Other include property consulting firms, legal firms, aged care, civil Construction, hotel operators, logistics and retailer.
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2018.
© 2018 CBRE, INC. CBRE RESEARCH | 23Asia Pacific Investor Intentions Survey 2018
CAPITAL MARKETS CONTACTS
ASIA PACIFIC
Rob Blain
Executive Chairman
rob.blain@cbre.com
ASIA
KOREA
Tom Moffat Don Lim SOUTHEAST ASIA CAPITAL ADVISORS
Executive Director Senior Director
tom.moffat@cbre.com.hk don.lim@cbrekorea.com SINGAPORE JAPAN
Jeremy Lake Junichiro Muto
Executive Director Senior Director
NORTH ASIA jeremy.lake@cbre.com.sg junichiro.muto@cbre.com.jp
GREATER CHINA TAIWAN
Alan Li Andrew Lin THAILAND
Managing Director Senior Director Kulwadee Sawangsri GLOBAL CAPITAL MARKETS
alan.li@cbre.com.cn andrew.lin@cbre.com Executive Director
kulwadee.sawangrsi@cbre.co.th
Yvonne Siew
HONG KONG SOUTH ASIA Executive Director
Stanley Wong INDIA VIETNAM yvonne.siew@cbre.com
Executive Director Gaurav Kumar Phuong Hang Dang
stanley.wong@cbre.com.hk Managing Director Managing Director
gaurav.kumar@cbre.co.in hang.dangphuong@cbre.com
INDUSTRIAL & LOGISTICS
JAPAN
Roderick Gerstman Nikhil Bhatia Xuan Quynh Nguyen Dennis Yeo
Associate Director Managing Director Investment Manager Managing Director
roderick.gerstman@cbre.co.jp nikhil.bhatia@cbre.co.in quynh.nguyen@cbre.com dennis.yeo@cbre.com
PACIFIC
DEBT & STRUCTURED FINANCE
AUSTRALIA NEW ZEALAND
Bruce Baker Mark Coster Andrew Stringer Steven Lim
Senior Managing Director Senior Managing Director National Director Senior Director
bruce.baker@cbre.com.au mark.coster@cbre.com.au andrew.stringer@cbre.co.nz steven.lim@cbre.com.au
© 2018 CBRE, INC. CBRE RESEARCH | 24Asia Pacific Investor Intentions Survey 2018
For more information about this report, please contact:
RESEARCH
Henry Chin, Ph.D. Leo Chung, CFA Karie Kwan
Head of Research, Asia Pacific Capital Markets Specialist, Asia Pacific Associate Director, Asia Pacific
henry.chin@cbre.com.hk leo.chung@cbre.com.hk karie.kwan@cbre.com.hk
For more information regarding global research, please contact:
Nick Axford, Ph.D. Richard Barkham, Ph.D., MRICS
Global Head of Research Global Chief Economist
nick.axford@cbre.com richard.barkham@cbre.com
Henry Chin, Ph.D. Jos Tromp Spencer Levy
Head of Research, Asia Pacific Head of Research, EMEA Head of Research, Americas
henry.chin@cbre.com.hk jos.tromp@cbre.com spencer.levy@cbre.com
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This report was prepared by the CBRE Asia Pacific Research Team, which forms part of CBRE Research—a network of preeminent researchers who collaborate to provide real estate market research and econometric forecasting to real estate.
All materials presented in this report, unless specifically indicated otherwise, is under copyright and proprietary to CBRE. Information contained herein, including projections, has been obtained from materials and sources believed to be reliable at the date of publication.
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©2018
© 2018 CBRE,
CBRE, Inc. INC. CBRE RESEARCH | 25Asia Pacific Investor Intentions Survey 2018 © 2018 CBRE, INC. CBRE RESEARCH | 26
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