In what it refers to as a “secular shift in capital markets”, Savills Investment Management (Savills IM) points to logistics, centrally located offices in key centres and multi-family assets as prime long-term investment assets in Asia Pacific for the coming year.
In its Outlook 2021: Building Resilience in Global Real Estate Portfolios report, the fund management affiliate of UK property consultancy Savills reveals that 70 percent of the world’s investors see investment into APAC either holding steady or increasing next year.
“Our research shows that real estate investors are confident about 2021, and recent positive announcements about the availability of a vaccine could certainly accelerate the recovery, boost sentiment and help cross-border investments to flow,” said Alex Jeffrey, global chief executive of Savills IM.
He added that despite this year’s disruptions, “investors should embrace the structural trends that have accelerated because of COVID-19”.
Offices Still Integral to Work
As investors regain confidence in COVID-battered economies, Savills IM expects the coming year to be defined by protecting existing portfolios and capitalising on structural trends accelerated by the pandemic. The international advisory also estimates that despite the paradigm shift in office work, the office market will remain resilient.
Although office leasing activity worldwide has dipped in the face of the pandemic and the subsequent vacancies in central business districts, Savills expects efficient, accessible properties in well-connected locations to perform respectably in the long term, suggesting that office dynamics are irreplaceable.
“Face-to-face office collaboration facilitates knowledge spillovers, learning and mentoring, improves creativity, and enhances productivity,” the report said. “The office is also a hub for social interaction, fuelling a collaborative and productive company culture.”
Fringe locations and Grade B offices in key centres such as Singapore and Seoul are seen providing crucial value-add or core-plus options, with regional Japanese cities becoming prime locations in which to exploit a wealth of cost-saving occupiers.
Among the hurdles investors may have to clear in the coming 12 months, in addition to continued COVID-related challenges, are ongoing Sino-US trade tensions and similar frictions within APAC.
“China’s assertiveness regionally and the deterioration in intraregional relationships such as that between China and India or China and Australia may have some impact on local economies, given China’s role as an important trade partner,” the report said.
Logistics Moves Up
Buoyed by supportive fundamentals, such as continued growth in e-commerce, favourable structural tailwinds and policy support — in the form of the 15-member APAC Regional Economic Comprehensive Partnership, signed on 15 November — logistics leads all asset classes with regard to favourability for the year.
Savills IM’s survey-based research found 57 percent of investors predicting increased exposure in big box distribution and fulfilment centres and 55 percent considering investment in last-mile and urban logistics assets.
Just this month, Singapore’s GIC added to its already extensive portfolio of warehouse investments with the roll-out of a European last-mile logistics joint venture with the UK’s Melcombe Partners.
The sector has been tapped as among the resources critical to the expected roll-out of the coveted COVID-19 vaccine, making markets with a shortage of modern facilities — particularly cold storage — ripe for mixed-use logistics facilities, according to Savills.
Also this month, US developer Hines announced that it had teamed up with Carlyle’s Metropolitan Real Estate unit to acquire a refrigerated warehouse project in the southern Chinese city of Dongguan, in the first of what is expected to be a series of cold chain projects.
Finding Value in Retail and Residential
Japan’s multi-family residential sector, which continues to benefit from regional patterns and favourable urban demographics, is expected to provide investors with a stable and defensive option, as long as investment is rooted in high-quality assets that provide a steady income.
Savills IM’s prediction on Japanese apartments is in line with the performance of the asset class in 2020, when investments in the nation’s multifamily sector reached $4.9 billion in the first half of the year. That number was more than triple the amount of cash that went into the market segment from January to June 2019, according to data from Real Capital Analytics.
In October, the fund management affiliate of UK property consultancy Savills reached a $200 million first close on Japan Residential Fund II (JRF II), an investment vehicle targetting opportunities in Japan’s multifamily sector, and the company’s its first open ended core fund in Asia.
The coming year’s most surprising under-the-radar investment star will be retail, according to Savills IM. “Opportunities to acquire underperforming smaller sub-regional shopping centres to reposition as neighbourhood centres, particularly in Australia,” are among 2021’s best bets, the report said.