Jointly published by PWC and ULI, the Emerging Trends in Real Estate Asia Pacific 2018 publication looks at trends and developments in the real estate sector in the Asia Pacific region.
Major trends picked up by the publication include a shift up the risk curve by investors, changing of returns expectations by investors (usually downwardly), an openness by investors to consider alternative asset classes such as data centres, affordable housing, co-living, shared workplaces and student and senior housing.
Due to the increase in liquidity, a lot more work is needed to generate the same returns. As growing flows of liquidity pour into real estate markets across the region, competition to buy assets has reached unprecedented levels.
This is resulting in higher prices, lower yields and increased appetite for risk.
For example, one investor described how much harder it is to find deals in the Japanese logistics sector, and another mentioning that returns demanded for opportunistic deals are being forced downward, from 20+% to 15-20+% presently.
Real estate investors are beginning to pay attention to alternative asset classes such as data centres, student and senior housing and coworking spaces where competition is thinner and yields higher.
In the past, data centres was considered too specialist. Today, however, a significant number of interviewees, according to PWC and ULI, are willing to consider it.
Investments usually take the form of a partnership with a professional operator, with investors targeting projected IRRs of 13% to 15%.
Supply/demand dynamics in this sector is favourable for investors, with shortages in capacity complemented by likely increases in future demand as data functions are outsourced, new broadband infrastructure is rolled out, and consumers ramp up use of cloud computing and big data.
According to PWC’s global entertainment and media outlook report (2016-2020), data consumption is expected to rise across all countries under their coverage – namely China, India, Indonesia and Japan.
China and Japan will be largest consumers of data, followed by India and Indonesia where broadband coverage is lower.
Another niche area where Asia Pacific investors have been active is in student housing. Regional focus continues to be on Australia, where international student numbers are healthy and inner-city student housing has been an institutional asset class for some time.
According to the PWC-ULI survey, yields for student housing assets in various Australia states are forecasted in the range of 5.5% to 6.25% (Melbourne and Sydney), 6.75% to 7.25% (Brisbane and Adelaide) and 7% to 7.5% (Perth).
In other parts of Asia, education-led real estate has historically been weak, but has picked up, such as in Hong Kong, South Korea and Japan, on the back of investor interest in student housing.
The coworking trend looks set to remain as a mainstay in the real estate sector. Only 24 months ago, most people in the industry had never heard of it.
Today, it is taking the office sector by storm, with coworking operators the biggest source of demand for new office space in many major Asian cities.
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According to Colliers, there is potentially up to 25% of savings for occupiers using coworking space compared to a traditional office.
Savings come mainly from set up and admin costs, as seen from the exhibit below based on a Hong Kong example.
Across Asia Pacific, investment prospects are good in Shanghai, Ho Chi Minh City, Singapore, Sydney and Melbourne and fair in all other countries under coverage.
In many ways, Sydney’s appeal is the same as it has been for years – as a major city in a mature economy, with a reasonably deep and liquid market of core assets with better-than-average yield.
Melbourne’s appeal is similar to Sydney’s – a mature market with high-quality core assets and relatively good yields compared to other Asian countries.
Ho Chi Minh is on a growth trajectory similar to early-day China. This has resulted in a wave of money from regional developers and private equity firms that looks set to be injected into the market. Bureaucracy and restrictions still exist, but are slowly being eased away, offering investors better access compared to other emerging Asian markets.
To get up to speed on how Asia Pacific markets are performing and to hear from experts in the field, the 5th edition of the REITs Asia Pacific 2018 conference is a perfect place to get started.
Register for the conference here with the code “PISREITS” to secure your seat now!
Organized specially for institutions such as banks, developers, funds, REITs, lawyers and government agencies, the conference will be held at Sheraton Towers Singapore on 2 Aug 2018.