Around the world in 25 themes

With 23% of UHNWIs planning to invest directly in commercial property in 2022, according to our Attitudes Survey, The Wealth Report asked Knight Frank’s global network to identify some options for private capital in their markets. From salmon farms to pubs, and everything in between, here’s a round-up of their suggestions

SINGAPORE LEONARD TAY, HEAD OF RESEARCH, KNIGHT FRANK SINGAPORE In urbanised Singapore, many real estate opportunities take the form of city-type buildings with high-intensity use. As such, private investors might be drawn instead to the historical charm of the city’s limited inventory of low-rise conservation shophouses. These unique properties can be used for family office space, or leased to businesses including retail and food & beverage for recurring income in areas that have been gentrified or are undergoing gentrification.

Strata office units (where individual office space within a building can be bought and owned) in the CBD could also be popular. These units, totalling only about 17% of total office stock, will be useful in the post-pandemic office era where smaller and more flexible office space will feature.

AUSTRALIA BEN BURSTON, CHIEF ECONOMIST, KNIGHT FRANK AUSTRALIA

Green hydrogen production, supported by federal and state investment, has the potential to make a substantial contribution to the clean energy transition while underpinning a new export industry. Australia has identified 262,000 sq km of coastal land suitable for hydrogen production, more than enough to meet the Hydrogen Council’s predicted global demand for 2050.

Growing government support for the sector, including through federal funding to make childcare more affordable, has increased the attractiveness of childcare centres as an asset class.

Pubs provide strong lease covenants and reliable income streams, and those located in attractive lifestyle destinations are underpinned by high land values with substantial upside potential, given the positive outlook for domestic tourism post-lockdown. The market is highly fragmented with limited institutional involvement, so is more accessible for private capital.

UAE JAMES LEWIS, MANAGING DIRECTOR, KNIGHT FRANK MIDDLE EAST & AFRICA Agritech and aquaculture are booming in the Middle East. Due to climate constraints, the Gulf region usually imports 80% of its food. Abu Dhabi is investing US$100 million in four agritech companies, the first stage of a larger US$272 million agritech support programme. Dubai-based Fish Farm, launched in 2013, produced 600 tonnes of salmon in 2020, rising to 1,000 tonnes in 2021 and eventually to more than 10,000 tonnes a year.

Covid-19 has also driven what appears to be a permanent shift in online shopping habits across the region, significantly ramping up demand for distribution warehouses. With this dynamic expected to not only persist but intensify, industrial warehouse assets have never been more popular.

HONG KONG MARTIN WONG, HEAD OF RESEARCH & CONSULTANCY, GREATER CHINA

As per the city’s 2021 Policy Address, the concept of the Northern Metropolis, which involves the development of an IT hub near the border with mainland China, construction of up to 186,000 homes and a new cross-border railway linking the city to the Qianhai (see page 61) economic zone in Shenzhen, has drawn a lot of investment interest from both developers and private investors. Industrial assets and commercial mixed-use developments in particular offer opportunities going forward.

FRANCE DAVID BOURLA, CHIEF ECONOMIST & HEAD OF RESEARCH, KNIGHT FRANK FRANCE

Vineyards are of interest with the French wine market seeing a healthy rise in exports. In the first half of 2021, France exported 7.3 million hectolitres of wine, 15% up on the first half of 2019, according to Vitisphere. There are winegrowing land groups, such as ATREAM, that specialise in vineyard investment.

Another opportunity for sustainabilityconscious investors is forestry, which has a relatively low entry point from €2,000 per hectare.

CHINESE MAINLAND REGINA YANG, HEAD OF RESEARCH & CONSULTANCY, KNIGHT FRANK SHANGHAI & BEIJING Healthcare assets – including larger assets such as medical research and life sciences facilities and smaller assets such as medical centres and pharmacies – will benefit from long-term structural tailwinds such as ageing populations and a rise in healthcare spending.

Healthcare is fast becoming the next sector in mainland China to attract significant amounts of investment from private equity, representing around 41% of deals by number and 20% by value in 2020, according to StepStone.

NEW ZEALAND CHRIS FARHI, HEAD OF INSIGHTS, DATA & CONSULTING, BAYLEYS REAL ESTATE In the residential space, build-to-rent, waterfront properties and 3-in-1 conversions (the ability to build three properties) all offer opportunities.

In addition, self-storage units are offering value through the underlying land. These assets typically have high occupancy levels, with the potential for strong income and capital growth.

Many are looking to leisure and hospitality as it will form the second part of the postpandemic recovery. Hotels, tourism businesses and golf resorts all look interesting.

INDONESIA SYARIFAH SYAUKAT, SENIOR RESEARCH ADVISOR, KNIGHT FRANK INDONESIA

The pandemic has created the opportunity to increase the agricultural productivity of arable farmland around secondary cities and there are prospects for further growth.

There is a lot of interest in digital infrastructure, such as data centres and micro-fulfilment and central fulfilment centres in metropolitan areas. Growth potential is very high as the global economy continues to digitise, and returns are often less correlated to the business cycle than traditional infrastructure assets such as airports, ports and toll roads.

CZECH REPUBLIC ONDŘEJ VLK, HEAD OF RESEARCH & CONSULTANCY, KNIGHT FRANK CZECH REPUBLIC

Retail parks proved to be pandemic-proof thanks to their tenant mix and open layout, which enabled them to stay open even during lockdown, and investors seem to appreciate that. Logistics is the product that everyone wants, but rarely gets traded, which helps yield compression, but in combination with rental growth still represents good investment opportunities.

TAIWAN ANDY HUANG, RESEARCH DIRECTOR, REPRO KNIGHT FRANK

We are starting to see industrial zones located outside of the CBD in Taipei. There is a specific lean to constructing prime offices generally and these are attracting a lot of investment. Urban renewal is becoming more popular, especially in the CBD with old offices being converted into prime housing through the application of government subsidies offered to those renovating unsafe buildings.

KENYA BEN WOODHAMS, HEAD OF KNIGHT FRANK’S AFRICA DESK AND FORMER MD KNIGHT FRANK KENYA

Assisted living for the elderly has not been common in much of Africa, but we are currently seeing a substantial investment in this sector as the concept catches on. We are also expecting a series of data centres to be developed close to the geothermal springs of the Great Rift Valley – the power-hungry facilities making use of geothermal energy produced by the volcanic activity in the region.

GO ONLINE FOR FURTHER ADVICE AND INSIGHT FROM OUR TEAMS TO THOSE LOOKING TO INVEST IN THEIR MARKETS

Flexi time

As the world of work changes, the wants and needs of office occupiers are transforming too. Lee Elliott presents the opportunities ahead for those private investors willing to understand and respond to these changing demands

Five key implications for private investors:

1. The flight to quality will generate more polarised market conditions. Quality assets will be competitive, and private investors may benefit from being more innovative and visionary in recognising the opportunity to bring older, off-prime pitch assets to a higher standard.

2. Offices are increasingly becoming an operational asset class. This may play to many private investors who have a history and understanding of operational real estate, such as hotels. As offices become as much about the experience they present to users as they are about the environment they offer, greater investment will need to be made into the service layer and amenities on offer.

3. The growing occupier focus on service leaves many investors worried about their ability to deliver an amenity-rich environment without impacting on net lettable, and therefore incomingproducing, space. Investors are looking outside the asset to consider the richness of amenity in the immediate surroundings. With foresight, private investors have an opportunity to spot emerging, amenity-rich submarkets.

4. As working styles become more flexible, so too do offices and office leases. In an uncertain post-pandemic period this quest for flexibility will intensify and the experiences of the global co-working phenomenon will also ensure flexible product is available. Private investors need to be comfortable with more operational elements within the office itself, but also have to recognise that long-term, stable income from entire offices is much more difficult to achieve.

5. Private investors will need to become more customer-centric and build relationships and rapport with their customers to a greater extent than has historically been the case. Customer understanding and responsiveness will be key to securing income over the longer term.

T

he way we work has undergone profound change since the onset of the Covid-19 pandemic. While some of this is undoubtedly temporary and will be reversed as restrictions are lifted, there remains a clear desire for greater flexibility.

We are witnessing the rising popularity of hybrid working – whereby work is undertaken in a range of settings including (but not restricted to) the office and employees’ homes. Indeed, in a late 2021 survey of almost 2,000 global C-suite leaders, KPMG found that 73% anticipated hybrid working styles emerging within their business; yet only a third had actually implemented a change. Clearly, there is some road to run and hybrid working will be a consistent theme during 2022.

As Ben Burston, Chief Economist at Knight Frank Australia, notes, “some large organisations have found that the binary choice of working from home or at head office is insufficient. These companies are turning to service providers to support flexibility with network membership solutions or smaller private suites to provide options to their staff.”

Insights from colleagues point to a similar picture across the globe. In Singapore, Leonard Tay confirms that “more corporates are adopting hybrid forms of working that sometimes include the adoption of access to co-working spaces for employees.”

Of course, changing workstyles tend to be reflected in the workplace. Despite stories calling into question the very survival of the office, occupiers have not taken a knife to their portfolios. Instead, they are focused on shaping their offices to reflect emerging wants and norms. “Hot-desking is becoming more popular in Hong Kong, but is not expected to lead to a drop in demand for traditional office space,” points out Martin Wong.

“When the pandemic first hit Kenya, the serviced office sector was hit hardest due to short-term licences, so occupiers simply opted to work from home,” notes Ben Woodhams. “Now, as the sector recovers, it is that flexibility that occupiers want, and so we are seeing a huge growth in occupation by serviced offices.”

Market activity – although still below pre-Covid benchmarks – is on the up. Our Active Capital research anticipates offices to be the most heavily invested property asset class globally in 2022, building on strong momentum in 2021.

However, this does not mean that things will stay the same. The sector will see structural change as occupiers take flight to quality, seeking spaces that are compelling to a workforce that has greater choice in where they work.

Amenity-rich offerings will be a focus. The office will become a centre for collaboration and innovation and this will be reflected in the configuration and utilisation of space. There is fledgling evidence of these changes already, with much more to come as we move from pandemic to endemic and occupiers lift the brakes on their property decisions accordingly.