APAC's commercial real estate investment to rise 5% in 2019

Urbanisation will continue to create opportunities for investors amidst a late-cycle environment.

Asia Pacific’s (APAC) overall real estate transaction volumes are forecasted to grow albeit at a slower momentum of 5% driven by the region’s strong demographic fundamentals, according to real estate consultant JLL.

The region’s urban population is expected to exceed 400 million by 2027 whilst its population aged 65 and above will rise by 146 million people within the next ten years. By 2021, APAC’s e-commerce market is projected to reach $1.6t, JLL highlighted.

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“Real estate continues to look attractive as a safe haven for investments with its portfolio diversification benefits and relatively higher returns compared to other asset classes,” JLL Asia Pacific’s head of capital markets Stuart Crow said in a statement. “However, in this late-cycle environment, investors are becoming more selective and disciplined in exiting investments because it’s getting harder to find income-producing alternatives.”

According to JLL, there will be five key trends that will shape APAC’s real estate industry in 2019, including growth in living assets, building flexible spaces to attract talent, a rise in logistics and data centres, a shift towards debt exposure and the evolution of smart cities.

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The report noted how the region’s increasing urban population has resulted in growing demand for alternative residential arrangements including student accommodations, nursing homes and co-living spaces.

“These new sectors are set to outperform traditional residential assets given their efficient use of space, superior building management and generally higher entry yields,” Crow explained, pointing out how aged care for instance, can offer returns of up to 14% in Tokyo and 12% in Singapore.

Meanwhile, a renewed focus on building human experiences and fostering innovation amongst employees has led to an uptick in flexible office across the region, JLL observed.

“By 2030, flexible workspaces could comprise 30% of some corporate commercial property portfolios worldwide,” JLL’s head of APAC research Megan Walters highlighted. “This means that market consolidation will become more common as landlords and developers will start to create their own flexible space offerings, form joint ventures with co-working providers or look at mergers and acquisitions (M&As) amongst co-working brands.”

In addition, rising pressure for organisations to establish their own data storage infrastructures or at least look to cloud service providers will spur on the construction of more logistics and data centres in the region. The data centre market is projected to expand, with significant capital targeting emerging markets like China, Indonesia and India.

A spike in investors turning to global offshore lenders who provide flexible forms of either debt or equity on selected projects in 2019 was also noted by JLL. Likewise, the firm projected that institutional investors may likely expand their footprint into real estate debt.

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Moreover, the report highlighted that with smart city initiatives being pushed ahead in Singapore, Japan, South Korea and Australia, APAC will see an increasing need to build better digital infrastructures which maximise efficiency and sustainability on top of improving living conditions for citizens.

“Proptech which is the convergence of real estate and technology plays a key role in the future development of cities,” Walters explained. “As smart cities are highly data-driven, smart property developments and management enable extensive data collection and analytics, both of which are crucial for cities to create more liveable environment for their growing populations.”