This Nagoya apartment complex was one of multiple Japan deals by AXA Investment Managers this year
Safe is sexy for real estate investors in Asia Pacific this year, according to the results of a survey released this month, with the region’s most stable markets becoming targets for managers of property funds targetting the region.
Japan now stands out as the top destination for real estate fund managers in APAC, with 56 percent of survey respondents aiming to increase their exposure to the island nation’s property market by the end of 2021, according to the Reimagining Asia Pacific Investment Strategies report released by JLL last week.
The study, which was based on a poll of representatives of 38 investment firms active in the region regarding their intentions between now and the end of 2021, also showed Hong Kong to be the most feared market in Asia Pacific, with 18 percent of respondents intending to decrease their exposure to the chronically troubled city.
Exposure Intentions by Market
| Country | Increase | Maintain | Decrease |
|---|---|---|---|
| Japan | 56% | 38% | 6% |
| Mainland China | 51% | 41% | 8% |
| Australia | 50% | 43% | 7% |
| South Korea | 44% | 55% | 1% |
| Singapore | 44% | 52% | 4% |
| India | 18% | 81% | 1% |
| Southeast Asia (excl SG) | 15% | 77% | 8% |
| Others | 4% | 89% | 7% |
| Hong Kong | 4% | 78% | 18% |
| Source: JLL |
Some 80 percent of the organisations participating in the survey indicated that they manage assets of $20 billion or more, with another 13 percent looking after between $11 billion to $20 billion.
Among these mega-managers, mainland China ranked as the second-most favoured destination, with 51 percent saying that they would boost exposure to the market, and Australia ranked third with 50 percent targetting Aussie opportunities.
“Mainland China is one of the most popular investment destinations in Asia Pacific,” Roddy Allan, JLL’s chief research officer for Asia Pacific said in a statement. “In particular, larger investors with over $20 billion in assets under management appear to want greater exposure in the market.”
Allan noted that, in total, three-quarters of these hypescale investors plan to either increase or maintain their exposure to the mainland market.
Waiting for the Rebound
Among the money managers, Hong Kong was the only location in the region where more than 8 percent intended to lower their exposure, with both mainland China and Southeast Asia (excluding Singapore) coming in at the 8 percent level.
Roddy Allan, chief research officer, Asia Pacific, at JLL
That willingness to stay the course came despite only 1 percent of respondents indicating that they expected their 2020 returns to show improvement over their 2019 performance, while 64 percent said that returns would marginally deteriorate and another 24 percent expected significant deterioration.
Despite, or potentially because of, the disruption wrought by COVID-19 some 65 percent of the survey respondents expect to be net buyers in Asia Pacific this year, with 52 percent indicating they believe investment volume in the region will begin to recover during the first half of 2021.
The largest obstacle to resuming activity, according to the respondents, is the challenge of sorting out the current market conditions, with 43 percent citing “underwriting assumptions uncertainty” as the largest obstacle, and another 17 percent pointing to pricing uncertainty.
Alternatives Go Mainstream
With returns under threat and market trends still emerging, investors are also turning to safe asset classes this year, according to JLL’s research.
“Our interactions with clients reinforce the view that investors will continue to seek defensive locations and sectors where the rental collection experience has been positive,” said Stuart Crow, JLL’s CEO for capital markets in the region.
“In addition to Mainland China, Japan and Korea remain high on the preferences for clients, as do sectors such as multifamily, non-discretionary retail and logistics,” he added.
Overall, office continued its role as the mainstay for real estate fund managers with 88 percent of respondents indicating that they expected to increase their exposure to the sector.
Coming in close behind offices, however, was industrial, with 81 percent of the respondents saying that they would like to put more money into warehouse deals, and multi-family came next with 58 percent targetting apartment investments.
With tourism still looking bleak around Asia Pacific, 26 percent of respondents indicated that they planned to decrease their exposure to the hotel sector, while 44 percent said that they would join the move away from retail by lowering their activity in that segment.
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