Mismatches between available homes and growing demand for rental housing in major cities in Japan, Australia and China are creating compelling investment opportunities, according to Adam Pillay, executive director of investor relations and APAC investment management leader at Greystar who kicked off Mingtiandi’s APAC Residential Forum 2024 on Tuesday. Watch the full recording here>>
During the 45-minute spotlight interview, which was sponsored by Yardi and broadcast live on MTD TV, Pillay explained to Mingtiandi founder Michael Cole how Greystar is positioning itself to benefit from booming rental demand on the back of demographic shifts, low home affordability and housing undersupply in cities such as Tokyo, Sydney, Melbourne and Shanghai.
“It is a city-led strategy in everything that we do. And on the back of those underlying fundamentals, our view is that those cities have a much larger propensity for growth than some of our more traditional markets that we’ve operated in over the last 30 years,” said Pillay. “Most of these cities have an established demand supply imbalance where there are growing populations and growing demand, but not enough available inventory to keep up with the demands of that new population and what they need as renters.”
South Carolina-based Greystar, which manages over $76 billion of assets globally and around $4 billion of assets in Asia Pacific, is preparing to broaden its multifamily portfolio in the region through development projects and acquisitions to meet demand for institutional quality rental housing.
Targeting Professionals
Pillay identified several key drivers of rental demand in Greystar’s Asia Pacific markets, including a growing concentration of young professionals in major urban cities, delayed household formation, and increasing barriers to home ownership amid high housing prices and interest rates. In 2022 median home prices in Shanghai reached 24.1 times median annual household income and that ratio was 17.8 times household income in Tokyo, according to the Urban Land Institute’s 2023 Asia Pacific Home Attainability Index.
Adam Pillay, Executive Director, APAC Investment Management Leader, Greystar
“In most of these cities, the largest cohort of the population tends to be 20 to 35 year olds. And in that group, the bulk of them are already renting,” said Pillay. “They’ve already come to the realisation that they’re going to have to rent for longer. That is a product of the economic environment. It’s a product of changing preferences and changing realities of entering the homeownership market.”
Pillay added that, in Shanghai, 40 percent to 50 percent of that 20 to 35 age bracket are renters, while in Melbourne and Sydney, that proportion is around 60 percent and two-thirds, respectively.
Greystar is also seeing rising demand for rental housing amid an influx of international students, particularly in Australia, which has surpassed the UK as the second largest student housing market in the world behind the US, according to Pillay. With tight vacancies in both the purpose-built student housing market and the broader rental market, the fund manager is eyeing potential entry opportunities in the student accommodation sector Down Under.
“(Australian student housing) is a keen focus for us. We’re looking at the best way to enter, whether it’s organic or inorganic. And right now we have a number of opportunities that we’re assessing from a development standpoint and that’s something that we would execute through one of our existing managed vehicles if and when those start to work for our return requirements. So it’s a focus of ours in 2024; I’m hopeful that we’ll have some runs on the board by the end of the year,” said Pillay.
Continued Expansion
Japan continues to be a key market in Asia for Greystar, which has built up a portfolio of nearly 4,000 units across Tokyo, Osaka, Nagoya and Fukuoka over the last three years. Pillay pointed to Japan’s $6 billion in apartment transactions last year as indicative of the market’s liquidity and scalability, with the fund manager continuing to acquire assets in the country.
“There are a large number of corporates that have large holdings of real estate that are non-strategic to them long term. Those are great opportunities for us to acquire from,” said Pillay.
In Australia, where Greystar’s pipeline of 1,400 units is expected to come to market in the next 12 months, the fund manager is diversifying beyond class A developments to focus on rental housing projects in commuter cities located within a 30-minute commute from Sydney’s central business district.
With those projects drawing “healthy” demand from younger populations with growing incomes, Greystar’s development pipeline in Sydney is “the strongest it’s been” since the fund manager began operating in the city in 2017.
“From a Greystar Australia standpoint, you’ll see us start to create a more diversified mix of housing that we operate, which will include some of those commuter locations alongside some of that class A type of product, which is going to create a really nice healthy diversification in the portfolio mix,” said Pillay.
In Shanghai, Greystar is repositioning its product mix on the back of the central government’s policies to promote the affordable rental housing market. Having entered the Shanghai market in 2016, the fund manager is now preparing to shift its focus to lower income renters.
“Our position on our (Shanghai) assets has been in the mid to upper range…I think rents are already under some level of pressure in terms of how the economic environment is playing out in China. I do think that you’ll see us start to move a little bit down the income levels in terms of the target renters that we have, which will be a great thing for us to continue to broaden our portfolio mix in China and in Shanghai specifically,” said Pillay.
Mingtiandi’s APAC Residential Forum 2024 continues on Wednesday with a spotlight interview with Sachin Doshi, founder and chief executive of Weave Living, and Hamish MacDonald, head and chief investment officer of APAC real estate at BlackRock. Weave last month unveiled a joint venture with a BlackRock fund to buy a Singapore serviced apartment block for S$148 million ($111 million).
Doshi and MacDonald will chat about that deal and other facets of their firms’ strategic partnership, followed by a Q&A session in which viewers can quiz the pair on their outlook for APAC’s rental residential market. The 45-minute presentation, which is sponsored by Yardi, will stream live at 10am Hong Kong time on 20 March.
Leave a Reply