Asia Pacific real estate investment transactions set to increase by up to 20% in 2021, says JLL
Office and alternative assets to drive activity as investors seek income stability and to capture diversification opportunities
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SINGAPORE, 17 December 2020 – Asia Pacific real estate investment volumes will rebound by 15% to 20% in 2021, driven by investor appetite for assets with income stability, according to new research from JLL. The global real estate consultancy predicts increased investor interest next year in logistics and so-called alternative assets such as data centres and multi-family or residential rental properties.
Hotel, retail and office investments will also gain pace in 2021 as pipelines rebuild, investors employ calculated deployment strategies, and the region’s projected economic recovery gathers momentum.
“The events of this year will position 2021 as the beginning of a new real estate cycle in Asia Pacific. Shifts in both investor appetite for core and alternative assets, coupled with occupier demand for spaces that align with a more sustainable and experience-driven environment, will become a more important strategic priority in the post-COVID world and a cornerstone of the market’s ongoing recovery,” says Anthony Couse, CEO, Asia Pacific, JLL.
Despite the pandemic-induced shift to home working in 2020, JLL remains confident that occupying office space remains an integral part of most companies’ future strategies, which means investors will continue to view this asset class favourably. According to a JLL poll of Asia Pacific corporate real estate leaders in the third quarter of 2020, 94% were expecting to either retain or increase the amount of higher quality spaces in their portfolio.
However, in response to the changes precipitated by COVID-19, offices will be reimagined to support employee health and well-being, to enable social distancing, and to offer more collaboration space. JLL expects declines in leasing volumes to stabilise in 2021 to end up flat on 2020 levels.
North Asia to lead recovery
Countries with deep domestic liquidity will continue to draw the majority of domestic and cross-border investment, building on the rebound first observed in the third quarter of 2020. Japan, China and South Korea made up three-quarters of transaction activity in 2020 due to effective management of the virus, resilient economic performance and deep pools of domestic capital. JLL expects investment activities to further accelerate in these countries as they outpace other regional economies in 2021. While direct commercial real estate transaction volumes fell 28% between Q1 and Q3 2020, declines slowed after the first half of the year.
Entering an expected low returns and low interest rate environment will further accentuate the attractiveness of high yield and low growth assets, according to JLL. Investors are likely to focus more on cash yields, for which logistics should outperform offices in most markets in Asia Pacific. The growth in multi-family and build-to-rent investments will also gain pace in 2021, driven by a new generation of renters, supportive government policy changes, and low interest rates that now undercut residential yields in many Asia Pacific cities.
“The rebound in transactions in the latter parts of this year will accelerate in 2021 as investors reaffirm their commitment to increasing exposures to Asia Pacific real estate. Longer term, the investment outlook remains incredibly positive given the expectation for continued low interest rates, huge amounts of dry powder and the insatiable hunt for yield,” says Stuart Crow, CEO, Capital Markets, Asia Pacific, JLL.
Opportunities for asset enhancement
A reimagining of outmoded assets and outdated spaces across all sectors is likely to become a theme during 2021. JLL estimates that 40% of today’s office assets (Grade A assets over 10 years old with no recent refurbishment) need some form of enhancement or renovation to stay relevant. As a result, investors’ appetite for value-add investments may increase in tandem with opportunities to reconfigure real estate to meet changing needs arising from e-commerce, health and safety, and remote working.
“If 2020 was the year that changed everything, 2021 may be the year where change becomes the new standard. The new year may not shake off all the challenges of a pandemic-hit economy, but with recovery in many markets and new dynamics influencing how people work, live and play, 2021 could establish itself as a year where Asia Pacific enters a new cycle of real estate growth, innovation and investment,” says Mr Couse.