A swift rebound in China is breathing life back into Asia Pacific’s economy this year, with logistics and residential among the property sectors benefiting the most, according to research by PGIM Real Estate.
In its recently released 2021 Global Outlook report, the fund manager notes that APAC real estate values fell only moderately in pandemic-hit 2020, presenting opportunities linked to a cyclical pickup in demand and rents or through longer-term structural trends.
“Logistics remains an appealing sector for investors because of the continued structural rise of e-commerce across Asia Pacific markets,” the report said. “In addition, an acceleration in online spending caused by the pandemic has raised demand and created a sense of urgency for space expansion among online retailers and logistics operators.”
The report was released just days after the real estate fund management affiliate of Prudential Financial announced a $323 million investment in purchasing a set of China warehouse projects developed by Warburg Pincus-backed New Ease.
Investor interest in warehouses has driven an unprecedented push in the development landscape, and the future supply pipeline remains high, especially in China, Japan and South Korea. The surfeit of supply is putting a cap on rental growth, which has averaged a modest 1.5 percent per year since 2016, the report said.
The authors advise logistics investors to maintain discipline and become increasingly selective within the sector — especially in Tokyo and Seoul, where completions are expected to continue at record levels over the next two years.
Logistics properties in established submarkets of Tokyo’s bay area, satellite cities of Shanghai and transport nodes near Seoul will remain highly sought after, the company predicts, particularly given consumer expectations of shorter delivery times.
While the outlook across the sector is mildly positive, PGIM expects the rise of online grocery to continue driving stronger demand for climate-controlled and cold-chain logistics facilities, which remain undersupplied in many markets.
Trends Lift Beds
Like many of its competitors, PGIM sees potential in rental housing investments alongside the promise of the logistics sector, with the company’s analysis indicating that favourable demographics and declining housing affordability are providing inroads for returns on holdings in Asia Pacific’s nascent multi-family sector.
The urbanisation and centralisation trends fuelling the growth of gateway cities have driven housing demand, while rising land prices have depressed development of new home supply, the report said.
Regional gateway cities that have seen a continued trend of less-affordable housing include Tokyo, Seoul, Sydney and Hong Kong. PGIM has observed an increasing willingness to rent — particularly in Australia and South Korea — which bodes well for a built-to-rent market that lags far behind the well-established US and Japanese markets.
Office demand, meanwhile, has turned a corner, with net absorption swinging to positive territory in most key APAC cities in the last quarter of 2020 and the first quarter of 2021 after a period of tepid demand.
Singapore, Seoul and Shanghai are likely to witness swifter office rental recoveries as COVID-19 fades into the background and workers return, while laggards like Tokyo, Osaka and Melbourne offer opportunities to gain exposure amid near-term pricing or fundamental dislocations, the report said.
Walking the Walk
Since closing on $1 billion in funding for the fourth rendition of its Asia Pacific value-add strategy earlier this year, PGIM Real Estate has been firing off a burst of acquisitions.
The company rang in the new year announcing that it had acquired a six-building multi-family residential portfolio across Tokyo and Yokohama for $120 million.
In early May, sources confirmed to Mingtiandi that PGIM had partnered with Canadian insurer Manulife to acquire a 90 percent stake in the 20-asset Fife logistics portfolio from Blackstone for A$850 million ($663 million).
Beyond beds and sheds, the investment manager’s other acquisitions in 2021 include the Lucid Square Toyocho office building in Tokyo from Hong Kong-based private equity firm PAG for $120 million and the 108 Robinson Road office building in central Singapore from local private equity firm Sin Capital Group for $107 million.