Asia-Pacific real estate investment deals to rebound 15-20% in 2021: JLL, ASEAN Business
REAL real estate investment deals in the Asia-Pacific region could rebound 15-20 percent in 2021, led by North Asia as investors look for assets with income stability, real estate consultancy JLL said in its Asia-Pacific real estate outlook 2021 on December 18.
You see the beginning of a new cycle of real estate growth in the region in 2021, with investor interest particularly in logistics and alternative assets such as data centers and multi-family or residential properties increasing.
Hotel, retail and office investments are also expected to pick up as economies recover from the effects of Covid-19.
Although direct commercial real estate transactions declined 28 percent in the first three quarters of 2020, the declines slowed in an encouraging sign after the first half of the year, JLL said.
Transactions in Japan, mainland China and South Korea accounted for three-quarters of activity in the region in 2020, and JLL expects these markets to continue that dominance in 2021.
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With some travel within the Asia-Pacific region resuming in 2021, cross-border investment flows are expected to help rebound in Australia, mainland China and Singapore.
Given a low interest rate environment expected over the next several years, uncertainty about growth will make high yield, low growth assets more attractive, the report said. “If there are still doubts about the upward rent and net present value, investors are likely to focus more on cash returns, where logistics outperform offices in most Asian markets.”
More capital is also expected to be devoted to opportunistic and value-adding investments. Real Estate Investment Trusts (Reits) could continue to grow through acquisitions, with JLL expecting 2021 to be “another record year for outgoing capital from Singapore Reits”.
An increase in transactions in 2021 also means pricing. “Assets benefiting from Covid-related demand and longer-term secular tailwinds see fixed pricing, especially for nuclear assets. When there is higher risk, asset pricing is more impacted, with price adjustments for opportunistic assets being greatest. We expect a further compression of returns for logistics, data centers and necessary retail goods. “
And while the pandemic sparked a shift to working from home, JLL remains confident about the office’s role. The decline in office rental volume should improve by 2021 and remain largely unchanged by 2020.
However, there will be a shift towards higher quality space, with an estimated 40 percent of office space in the Asia-Pacific region in need of renovation. “Smaller or larger capital appreciation, depending on the asset, could mean $ 400 billion of unrealized value for investors pursuing value creation strategies.”
Challenges remain in retail, but non-discretionary retail will remain an outlier and will hold its own in 2021.