Real estate investment volume in Asia Pacific is poised to rebound with up to 20 percent growth in 2021, led by liquidity-rich North Asia, according to a JLL report.
In its outlook for Asia Pacific capital markets, the property consultancy also predicts increased investor interest this year in logistics and alternative assets such as data centres and multi-family rental properties.
The pandemic-driven events of the past year will position 2021 as the start of a new real estate cycle in the region, said JLL Asia Pacific CEO Anthony Couse.
“Shifts in both investor appetite for core and alternative assets, coupled with occupier demand for spaces that align with a more sustainable and experience-driven environment, will become a more important strategic priority in the post-COVID world and a cornerstone of the market’s ongoing recovery,” Couse said.
The report foresees countries with deep domestic liquidity continuing to draw the majority of domestic and cross-border investment, building on a rebound first observed in the third quarter of 2020.
Japan, China and South Korea made up three-quarters of transaction activity last year, drawing on deep pools of domestic capital. JLL expects investment activity to further accelerate in the three countries as they outpace other regional economies in 2021.
In Asia Pacific as a whole, the volume of direct commercial real estate transactions fell 28 percent between the first and third quarters of 2020, but declines slowed after the first half of the year.
JLL forecasts a 15-20 percent rise in real estate investment volume in 2021, noting that volume in 2010 rose 47 percent as the region recovered from the global financial crisis.
“The rebound in transactions in the latter parts of this year will accelerate in 2021 as investors reaffirm their commitment to increasing exposures to Asia Pacific real estate,” said Stuart Crow, CEO for Asia Pacific capital markets. “Longer term, the investment outlook remains incredibly positive given the expectation for continued low interest rates, huge amounts of dry powder and the insatiable hunt for yield.”
Investors will plunge deeper into alternative assets in 2021, the report said, highlighting data centres as one of the largest recipients as global mobile data traffic continues to grow by about 40 percent annually.
JLL cited government policies, local data storage requirements and power usage as some of the factors driving location and construction decisions in Asia Pacific.
Another trend worth watching is the growing appetite for multi-family and build-to-rent investments, driven by a new generation of renters, supportive government policy changes and low interest rates that now undercut residential yields in many cities, the report said.
The bulk of investment activity in multi-family assets remains in Japan, fuelled by domestic migration to Tokyo. JLL also sees longer-term investment potential in Australia, South Korea and mainland China for this asset class.
Logistics, the breakout performer of COVID-wracked 2020, is likely to enjoy continued growth this year, boosted by rising internet penetration in Asia Pacific and the expansion of online grocery and omnichannel retailing. APAC is set to account for 50 percent of global e-commerce logistics by 2024, the report said.
JLL noted that among investors which it has worked with — which boast $1.8 trillion in assets under management — 81 percent plan to increase their exposure to logistics in 2021.
Office Enhancement Opportunity
In a shift, investors are likely to deploy more capital into opportunistic office projects after a focus on core investments during the last few years, JLL said.
With an estimated 40 percent of Asia Pacific office assets needing some form of renovation, the agency pinpoints value-add investments as a way to meet changing needs arising from e-commerce, health/safety and remote working.
And despite the telecommuting trend, a JLL poll of Asia Pacific corporate real estate leaders in the third quarter of 2020 found that 94 percent expected to either retain or increase the amount of higher-quality office space in their portfolio.
“If 2020 was the year that changed everything, 2021 may be the year where change becomes the new standard,” Couse said. “The new year may not shake off all the challenges of a pandemic-hit economy, but with recovery in many markets and new dynamics influencing how people work, live and play, 2021 could establish itself as a year where Asia Pacific enters a new cycle of real estate growth, innovation and investment.”