Despite the new variants of Covid-19 and the recent spike in Asia-Pacific cases, opportunities still abound in the region as investor appetite shifts to select real estate segments.
According to JLL’s Asia Pacific Capital Tracker 2Q2021 released in July, real estate transactions in the region totaled US $ 83.5 billion (RM 353.8 billion) in 1H2021, only 6% lower than in 1H2019. . Transaction volumes are expected to grow 15-20% year-over-year (year-over-year) in 2021, according to the report.
The report points out that logistics investments in the region are expected to double to between $ 50 billion and $ 60 billion per year. âWe expect Asia-Pacific investors to increase their logistics exposure from 16% currently to between 20% and 23%. If this reallocation is done over four to five years, we expect logistics transactions to double to between US $ 50 billion and US $ 60 billion per year, from US $ 25 billion to US $ 30 billion in 2019 and 2020. “
Logistics in the spotlight
Logistics investments resumed in Australia in 2Q2021 due to increased logistics and retail activity in the country. âJapan remained the only weak region, due to further disruption amid rising Covid-19 cases and vacancies. Australia, China and South Korea were the most active, accounting for 69% of the volume, âexplains JLL.
âIn 2Q2021, office, logistics and retail transactions accounted for 31%, 30% and 30% of volumes, respectively. Retail sales were boosted by portfolio transactions in China and hypermarket sales in South Korea. Logistics transactions nearly doubled during the quarter.
In 2Q2021, logistics investments in Asia-Pacific reached US $ 15 billion, up 215% year-on-year. âTotal investments over the past four quarters reached US $ 44 billion, up from US $ 25 billion in 2019,â the report said.
There were several contributing factors, according to JLL. âBigger deals are done. Logistics transactions of over US $ 300 million have quadrupled in the past two years. Three transactions in Australia represented US $ 5 billion in the past two months. Data centers are growing; ESR will invest US $ 2 billion in a data center in Osaka while Princeton is investing US $ 1 billion in Saitama, Japan.
The report shows that funds in South Korea, Australia and China have increased one to seven times since January 2020, compared to the previous five years. Funds with core and core-plus strategies have reached between 40 and 50% of total logistics funds compared to 20 to 30% five years ago.
âAs investors make logistics a core part of their portfolios, they will acquire modern assets anchored in e-commerce, third-party logistics (3PL) and regional occupants with strong credit quality, with long leases, rent increases and probably more sales and leasebacks, âhe adds.
Sales to businesses, sale-leaseback accelerate
In terms of sales and leasebacks to businesses in Asia-Pacific, transactions exceeded 10% of volumes in 1Q2021, increasing from 7% in 2015 to 2020. Australia and China. In Japan, since the start of the pandemic, more and more companies have turned to a strategy of reducing assets, strengthening their balance sheets, âthe report said.
One example is the head office of Dentsu, which was the subject of a US $ 3 billion sale-leaseback transaction in June, marking one of the largest deals in Japan.
In Australia, David Jones’ flagship store in Sydney was sold for A $ 510 million with a 20-year lease, while in China developers would likely have streamlined their asset portfolios as credit conditions grow. hardened.
Meanwhile, real estate investment trusts (REITs) continued to outperform in 1Q2021, according to JLL. âREITs for hotels, offices, retail and industry grew by 12%, 11%, 3% and 3% respectively. REITs use a competitive cost of capital for acquisitions, which reduces returns, âthe report notes.
For example, Mapletree North Asia Commercial Trust purchased an office asset on the outskirts of Tokyo for US $ 354 million at a yield of 3.6%, funded at a cost of capital of 2.4%, perpetual securities at 3 , 7% and a debt at 1%.
The report also highlights the volumes of collective housing and construction for rent. These funds could double in three years and become the third asset class after the office and industrial sectors.
âThe share of tenants in South Korea is high and the investment of funds in multi-family assets is just beginning. In Australia, the share of tenants has increased from 30% to 33% over the past decade. In China, leasing will gradually become more widely accepted as the inventory increases and the government pushes more to lease, âhe adds.
Offices and shops on the rise, hotels remain stable
According to JLL, the net office absorption rate has recovered and rents have stabilized across the region. In 2Q2021, office demand improved in most cities in Asia-Pacific, except Japan. âAustralian CBD office markets recorded a positive net absorption rate for the first time since 4Q2019, while office rents took a turn in Singapore and Shanghai. “
The desire to return to the office has grown over the past six months, with an increased need for real interaction with colleagues, the report says. âThe demand for flexible spaces and healthier buildings is expected to increase due to increased awareness of the need for agility and sustainability. Hybrid work remains a priority, but more aspire to return to the office.
Retail investment increased 136% in 1H2021, with strong growth in China, Australia and South Korea, according to JLL. âLarge retail portfolios in China have been acquired. Brookfield purchased five business assets from ADIA and its partners, while Ping An acquired stakes in an integrated portfolio of Raffles City developments from Capitaland. Investors were encouraged by the strong rebound in consumer confidence.
âSales from hypermarkets in South Korea and convenience stores in Australia also boosted volumes. We anticipate the sale of more resilient retail assets and neighborhood centers in the coming quarters in Hong Kong, Singapore and Australia. “
At the same time, hotel transaction volumes remained stable in 1H2021, despite a strong pipeline. âThere were $ 3.7 billion in hotel sales in 1H2021 across the Asia-Pacific region, with volumes down 4% year-on-year,â the report notes.
As of 2Q2021, notable transactions included the Mercure Ambassador Hotel Hongdae at Hyundai Asset Management in South Korea. The headquarters of HPL Hotels and Resorts acquired the Kanuhura Maldives Lhaviyani atoll. Somerset Xu Hui Shanghai was acquired by Jebsen Group for $ 161 million, signaling investor interest in serviced apartments in mainland China.
The report highlights that China, Japan and South Korea are the region’s most active markets in this sector, collectively accounting for 85% of Asia-Pacific transaction volumes. âMarkets with stronger domestic capital pools continue to pave the way for transactions,â he adds.
âThe owners are abandoning their positions as they consolidate their business portfolios. Both owners and non-strategic funds consider exit options, especially when the fund’s life expires. Selected distressed / structured divestitures are underway, particularly in resort markets such as the Maldives, Phuket, Koh Samui and Bali, due to expected pent-up leisure demand. “
According to JLL, a strong sales pipeline that was planned for Japan and Australia in 2H2021 will increase transaction volumes in these markets. Meanwhile, the global commercial real estate services company is forecasting US $ 7 billion in hotel sales for the year, reflecting 20% ââyear-over-year growth.