Real estate investment activity in Asia Pacific to outperform other regions in 2020, says JLL

Investment in Asia Pacific real estate has reached US$125 billion in the first three quarters of 2019, up 10 per cent year-on-year, and is set for another strong year in 2020, says JLL.

According to the real estate consultancy, foreign investments into Asia Pacific are at a decade-high, making up 35 per cent of total volumes, mostly driven by private equity funds and large-scale transactions.

“Real estate in Asia Pacific has gained favour in the last year as investors continue to seek high yields and stability amid a climate of geopolitical uncertainty and slowing economic growth. As an increasing amount of capital is being allocated to real estate, we’re seeing more clients making larger-scale investments to expand their portfolios,” explains Stuart Crow, CEO Capital Markets Asia Pacific, JLL.

“Over the next two years, we expect global real estate transaction volumes to stay elevated and Asia Pacific to outperform Europe and the Americas with an outsized portion of global investor interest.”

JLL reveals five key trends that investors should look out for in 2020.

1. Logistics assets are a hot ticket

Investor appetite for logistics continues to pick up, meaning these types of facilities are held tightly. The result is that investors must become more creative in order to access quality assets.

“We’re seeing more investors form joint ventures with major established players. Some are taking partial stakes or even going into public markets. A recent example is Canadian pension fund OMERS’s cornerstone investment in ESR logistics platform when the latter filed to be listed on Hong Kong’s stock exchange,” says Crow.

In the Philippines, JLL Philippines Director for Industrial and Logistics Tom Over, noted the country’s strong economic growth and opportune demographics are growing the domestic consumer market and will drive e-commerce, logistics and manufacturing – all of which provide a new area for investment into the supply chain.

Over heads JLL’s dedicated Industrial and logistics team in the country which is leveraging PropTech to find solutions in a rapidly changing real estate landscape. Over said these segments have incredibly strong growth fundamentals both on a global and national scale, and applying technology to identify future drivers of growth, such as infrastructure projects,  will initiative a rapid evolution of the logistics market in the country.

 2. REITS are the next to watch

In 2019, Asia Pacific REITs (Real Estate Investment Trusts) raised a record amount of capital at over US$14 billion, surpassing the previous record of US$13.8 billion in 2013.

JLL predicts that Singapore and India will see more REIT initial public offerings next year, mainly driven by their focused growth strategies and consistent trading performance. More strategic mergers and acquisitions will allow funds to grow geographically and deepen their investments into newer markets in U.S. and Europe.

Crow says: “Looking ahead, REITs are likely to continue their strong trading performance and be highly competitive buyers of real estate assets. Size matters and we can expect to see more consolidation in this sector.”

Locally, the Philippine REIT law has created much buzz since end of 2018 (despite being enacted into law in 2009) as prominent local real estate developers are expressing their interest to securitise their assets. REITs present a new avenue to raise capital, diversifying the existing and practiced public and private capital formation in the country. The Philippines’ potential to expand investments through the use of REITs has been untapped due to roadblocks including the prohibitive 12% tax on transfer of assets and minimum public ownership (MPO) of 67%.

The Philippine office sector has performed well in the first quarter of 2019 and is expected to remain robust with healthy supply in the pipeline, resilient demand and stable rental growth. These factors should continue to fuel investor interest in the country. There is potential for other asset classes (industrial, retail, residential, and hospitality) to be securitized into REITs as the performance of these sectors continue to thrive and support the local real estate market.

REIT will be a big benefitting factor in the Philippine Real Estate Market as it will open a fresh set of funding and capital needed to expand to the office, retail, commercial and industrial real estate sectors, says Christophe Vicic, JLL Philippines’ Country Head. “We are optimistic that there will be more real estate transactions in the country due to this,” he continues.

3. Sustainability initiatives present investment opportunities

The next generation of buildings is set to become more ‘green’, with sustainable technologies to save on operating costs as well as innovative design to attract more occupiers and tenants, says JLL. Recently, Singapore-listed Keppel REIT has obtained a green loan facility to grow its green building portfolio.

Crow explains: “We believe that governments in this region are sustainability conscious and proactive in transforming their cities to make them smarter and more livable. These initiatives present opportunities for astute real estate investors, either by acquiring or developing sustainable assets, or being a part of the city redevelopment process.”

Singapore, for instance, has started on its sustainability journey with the decentralization of its CBD, encouraging the redevelopment of older office buildings into mixed-use integrated developments and reducing the use of private transport. Similarly, Beijing has restricted the size of commercial developments in the central area and targets to reduce the population in its six central districts by 15 per cent from 2014 levels.

Locally, JLL Philippines recently moved to its new headquarters at the NEX Tower, a building certified by Leadership in Energy and Environmental Design (LEED) and the newest skyscraper in Ayala, Makati.  It is also pursuing a certification by WELL Building Standard, a performance-based system for measuring, certifying, and monitoring features of the built environment that impact human health and well-being.

“We aim to make the new office an archetype environment for the Future of Work, our outlook that envisions a sustainable and transformed work environment that focuses on human experience amidst a tech-driven job set-up,” said JLL Philippines Country Head Christophe Vicic. “We believe that putting people at the center of workplace design and augmenting their experience using Digital Drive will result in Collaborative Ideation, Continuous Innovation, Improved Financial Performance and Operational Excellence.”

4. Innovative cities will dominate office markets

According to JLL’s latest Premium Office Rent Tracker, technology firms – particularly online platforms – are playing a greater role in driving up rents for premium offices, which have previously been the domain of the banking and financial services industry. This is particularly the case in innovation-rich cities like Beijing, Tokyo, Seoul, Shanghai, Singapore and Osaka.

Like real estate investors, corporate occupiers are attracted to these locations with sophisticated innovation ecosystems. These cities sustain highly skilled workforces and are best placed to succeed in the global marketplace, says JLL.

“We’ve seen how technology can help to shape a city’s economic growth by attracting investors and companies. Beijing’s office market will become a hotspot for investors next year as it has a strong talent pool supported by a deep-rooted innovation ecosystem. It has nurtured the most unicorns outside of Silicon Valley and is the third largest destination for venture capital funding,” adds Crow.

In the Philippines, the urban setting is likewise starting to make cities “smarter”. Megacities Manila, Cebu, and Davao have already started rolling out smart city initiatives. But while the promise of a smart city is attractive, delivering it is a challenge. To deliver true value, the smart cities ecosystem needs to address the following six key challenges:

- Cities are complicated - The size and scale of cities create many organizational challenges. Different authorities often have significantly different requirements and preferences regarding IT projects.

- Cultural change is difficult - Dealing with cities involves bureaucracy. Many government agencies have not adapted their business and operating models in years, which can make them risk-averse and resistant to new ideas.

- Governance is essential - Smart city governance uses technology to facilitate better decision making; plan, deliver and support smart city implementations; and share real-time data among governments, businesses and citizens.

- Solutions are complex - After overcoming the organizational challenges, cities are left with their biggest challenge yet: identifying and deploying a solution that can be scaled successfully. 

- The vendor ecosystem needs to be re-examined - cities must identify products or solutions that deliver their promised value. No one entity is capable of doing everything that is needed in smart cities, so consortiums are key.

- Funding is limited - While smart city market opportunities are very attractive to technology vendors, their complexities and high levels of risk can inhibit further development. 

5. Flex space boom continues

By 2020, collaborative and agile workspaces are expected to increase from 19 per cent in 2018 to around 30 per cent of corporate commercial property portfolios worldwide, according to a JLL survey of 560 corporate real estate leaders. The firm predicts that flex spaces could expand in key gateway cities such as Singapore, Tokyo and Sydney, where demand continues to be high and there is room for more coworking operators and serviced offices to grow.

“Flexible space in Asia Pacific continues to attract the attention of investors and occupiers alike as the sector maintains its strong growth trajectory,” said Crow. “Landlords and developers are likely to maintain their partnerships with coworking operators or serviced offices, and some will create their own flex space offerings to keep up with tenants’ changing needs.”

“In the Philippines, many known brands have already put up flexible work space or ‘plug and play’ office spaces, many of which accommodate newcomers, small businesses, and BPO shared services,” explained JLL Philippines’ Head of Commercial Leasing Lizanne Tan.

“JLL Philippines offers added value to our clients by coming up with different options for them as well as strategies that would best suit their requirement, whether that calls for flex space or a traditional office. We dig deeper based on their needs, what is valuable to them, and what will be more cost-efficient in the long run,” she said.