Commercial real estate investment in Asia Pacific fell by 23 percent during the first quarter of this year, according to recent research by CBRE, as the COVID-19 crisis spread globally and investors rushed to adjust to the realities of business amid a pandemic.
However, the property consultancy’s Capital Markets team, which ranked first globally in investment advisory for a ninth consecutive year in 2019, is starting to see budding signs of recovery in selected Asia Pacific markets as sovereign wealth funds, insurers, private equity and other players look for opportunities to deploy capital.
CBRE’s head of Capital Markets for Asia Pacific, Greg Hyland, is also experiencing a shift in investor behaviour as developers, fund managers and other players adjust to the realities of 2020.
Getting Back Upfield
“Since the crisis began, investors in the region had been spending 75 percent of their time managing existing portfolios or dealing with new regulations and policy initiatives,” Hyland explained.
While governments have been quick to roll out support packages that blunt the impact of the crisis, the veteran of nearly two decades of investment deals in the region believes that, as the market recovers in the coming months, buyers will be shifting their priorities.
“There will be an emphasis on cash producing assets and quality properties,” Hyland said, adding that, “initiating new development may still be possible if it’s underpinned by substantial rental commitments.” Overseeing a team of more than 550 Capital Markets specialists across Asia Pacific, he indicated that core markets in Australia, Japan, Singapore, Korea and Greater China are likely to see the strongest responses, at least initially.
Activity Restarts in China
The country which was first to feel the impact of the coronavirus crisis is already showing encouraging signs with the real estate service giant’s team already advising investors on a number of strategies targeting mainland China opportunities.
“We are seeing green shoots in China in particular,” said Gretchen Yuan, a Hong Kong-based executive director with the company’s investment banking division, CBRE Capital Advisors.
Yuan who joined the company last year, said that investors are focusing more than ever on assets in first tier cities, while the company also has a mandate related to logistics in mainland China. There continues to be a strong logistics theme driven by increasing occupier demand, led by e-commerce and structural under-supply in gateway cities.
While real estate investment in Asia Pacific took its most sudden drop in a decade during the first quarter, some investors are already indicating that they will boost allocations to the sector as equities markets continue to gyrate.
“A lot of investors were burned in the public markets this year,” Yuan pointed out, indicating that the stock market disruption has made major players look more closely at alternative asset classes. “An active sovereign fund reportedly spent more than $1 billion to acquire an office complex in Beijing in February, alongside signing a data centre deal in Japan and committing to a logistics venture in New Zealand.” She pointed to this group as among the investors likely to stay active in the coming months.
“As equities look riskier, sovereign wealth funds are upping their allocations to real estate,” Yuan said. She added that, with banks becoming more cautious about lending, insurers are also seeing more opportunities as less cash-rich investors struggle to access capital.
The multi-family sector in Japan has continued to shine even under this unpredictable environment. The sector has maintained stable income generation despite previous downturn trends following the GFC and the Great East Japan Earthquake, and still commands strong interest from global investors.
CBRE’s Capital Markets team in Japan, led by Takashi Tsuji, recently closed a large residential portfolio deal valued at USD2.75 billion with a US-based global fund player, which demonstrates the strength of the multi-family sector.
Tracking a Shifting Market
While activity recovers, CBRE’s team cautions that investors making decisions in 2020 will be facing an environment that in some areas will look starkly different from a year ago and timely information will be both harder to get, and more critically important, than ever before.
“In 2020, we are likely to see core assets, such as prime office and logistics properties reach the market, that would not have become available last year,” Hyland said. “Investors will gravitate to well-located core assets due to the inherent strong creditworthiness and resilience of underlying cash flows. That said, increasing questions are being asked about how office and logistics spaces will be consumed by corporations, and what the long-term impact of new emerging trends may have on demand.”
CBRE is the world’s largest commercial real estate company with more than 530 offices and 100,000 employees worldwide. The company’s researchers are constantly gathering and analysing data on occupier behaviour with Hyland seeing week to week changes that, this year, can show a greater shift than typically happens across a year in some markets.
During 2020 the company’s supply chain teams are working with occupiers to assess how resetting of stock levels to accommodate future supply shock risks and increased e-commerce demand will impact logistic footprints. At the same time, CBRE is working with office investors to reconcile the potential for increase in work space ratios to allow for social distancing with greater adoption of flexible work arrangements.
“Things are happening very quickly. I’m on Zoom calls daily with our teams around the region to try to ensure our advice is in line with changing market conditions,” he said. “We need to be confident that we have a picture of how assets will be looked at over the long term and how this will impact value. As a global company, we have a good pulse of the market and we are connected to key investors across Asia Pacific. ”
Working in Real Time
Among asset owners, Hyland has seen increasing demand for information on the market outlook and how other players are navigating the crisis.
“One of the requirements that has jumped to the forefront this year is access to real time data,” he said. “Asset operators want to see how their peers are dealing with issues such as rental relief, and potential sellers need up to date information on the valuation that their property can achieve of its potential on the market today.”
Hyland and Yuan both emphasised the need for investors and asset owners to stay informed, so as to be ready to make key decisions as markets change and critical moments arise.
Hyland adds, “While there are day to day challenges during this period, market information is crucial as this crisis is likely to present opportunities to the best prepared investors.”
This sponsored feature is contributed by CBRE.