The global recovery continues in 2018, with all major economies now expanding at firm growth levels. In the Asia-Pacific, an environment of strong growth and low interest rates is likely to persuade real estate investors to commit more to this part of the world.
‘‘This may be a good time for investors to consider a strategic entry into India,’’ says Anthony Couse, CEO for the Asia-Pacific at JLL. In this interview, he shares his views on the trends shaping regional property this year, from proptech to attractive investment sectors and destinations.
Maurits Elen: What themes will define 2018?
Anthony Couse: This year, we see three major trends that will shape the industry.
First, real estate investors will seek opportunities in alternative real estate sectors, such as aged care, senior housing, student accommodation, education, self-storage facilities, and data centers, to diversify their portfolios for long-term growth. We believe that this area will draw significant interest from investors, especially since demand clearly outweighs supply and the demographic demand drivers in the Asia-Pacific are growing quickly. Yields on self-storage facilities are attractive compared to other asset classes, too. It can get you returns ranging anywhere from five to even eight percent across the region.
Second, proptech. The convergence of property and technology will increasingly impact the way we use real estate. It is the latest disruptor to our industry and is likely to pick up steam in 2018. According to our recent report, Asia-Pacific proptech start-ups have already received 60 percent ($4.8 billion) of the $7.8 billion raised by global proptech start-ups from 2013 to 2017. Digitization, the Internet of Things, and automation will not just be buzzwords as they start making a significant impact on corporate real estate strategies. We can expect the rise of smart buildings and adoption of innovation in the long term.
Third, offices will extend beyond the traditional four walls and become the next talent recruitment tool. Companies are starting to recognize how important employee engagement is in driving productivity and business goals. Workplaces that offer high-tech, human-centric, and personalized space offerings, such as collaborative workspaces, food and beverage, gyms and wellness areas, will stand out in the war for talent.
What countries will cross-border investors focus on this year?
India will be on the hit list for more global investors. Last year, we saw several high-profile investments, with Singapore’s GIC purchasing a 33 percent stake in a unit of DLF Cyber City for $1.4 billion. The real estate arm of Allianz also announced a partnership with India’s Sharpoorji Pallonji Group to establish a $500 million fund to target India’s office market. India will continue to be a top developing market, with tier 1 office and retail sectors projected to show the highest total returns this year. So this may be a good time for investors to consider a strategic entry into India, given its positive long-term fundamentals and economic growth.
Looking elsewhere, Asian investors will continue to invest outside the region in 2018, due to the large amounts of capital that local markets are unable to absorb. In particular, investors from Hong Kong and Singapore are actively pouring capital into Australia, the U.K and the U.S.
How appealing is real estate equity among other asset classes?
Globally, investors have continued to demonstrate their confidence in real estate as an asset class. This was especially evident in 2017, with investment in the final quarter hitting its highest level in three years.
Despite political concerns, real estate markets mirrored the global economic recovery. The broad-based growth, low interest rates, and lack of inflationary pressure seen across the world have created an ideal environment for property investors as compared to other asset classes. Strong fundamentals and positive market sentiment have also prevented major dampening in the region, which has in turn benefited the real estate industry. Robust growth prospects for Asia-Pacific’s real estate will boost the sector’s attractiveness as an investment destination.
Has there been improvement in market transparency?
More governments in emerging markets are starting to recognize the need to improve information and transparency, and encourage appropriate rules to enhance their economies. Our data has shown the global real estate transparency score across Asia, particularly Vietnam and Indonesia, has improved in the last 12 years, giving international investors more confidence to enter these markets.
How significant is the Belt and Road Initiative (BRI) for industrial and logistics real estate?
China’s BRI is putting Beijing at the center of global trade. It is not meant to be a literal route across region nor designed to be a continuous strip of development focused on shipping goods. Rather, it is more about the short run connections, from Kazakhstan to China, Iran to India, and the logistic hubs in those areas. In its rapid rise, China has gained tremendous experience in infrastructure and these skills are primed for export to the rest of the world when Chinese firms win contracts for overseas work.
Although China has the advantage of better infrastructure, the connectivity situation in other parts of Asia is set to improve, with many overseas firms pledging their support to construct power plants and transport links in various cities. China’s BRI and economic integration will also facilitate intra- and inter-trade flows within ASEAN and China. Another example is Hong Kong – with its status as a key industrial and logistics hub further cemented by BRI.
Certainly, there is still much to be clarified, but the opportunities, in the form of jobs, trade and business, are undeniable.
This interview has been edited for clarity.