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for Hong Kong’s strong growth prospects deepen the allure of schemes like Lee Tung Avenue

Rebounding deal volumes in 2021 proved that despite pandemic restrictions and geopolitical worries, investors are betting on Asia. Isobel Lee reports

Real estate markets across the Asia-Pacific (APAC) region were remarkably resilient in 2021, with the year seeing an estimated 30% rise in volumes compared to 2020, according to data from Savills. Simon Smith, Savills’ head of research Asia-Pacific (APAC), says: “Transaction volumes had fallen to 2017 levels in 2020, but the bounce back is taking us into record territory for the year. Whether we will see similarly high levels of activity in 2022 is open to debate, and much will depend on how the pandemic develops and how policy makers respond.” However, all signs suggest that there is plenty to be positive about. APAC economies recovered much lost GDP growth in 2021, and are set to expand further in 2022, with India (8.8%) and China (8.2%) leading the way, while the forecasts for Hong Kong and Singapore (6.5% and 6.4% respectively) are also strong. “The weight of capital allocated to the region by private equity real estate funds suggests an active year of deal making ahead. At the same time, a relatively benign inflationary environment leads us to believe that any interest rate rises will be modest,” Smith says. Across the region, investors are finding opportunities that fit a range of strategies, thanks to APAC’s compelling mix of developed and developing markets. But its dominant territory remains China, the world’s biggest property market by asset value, with around 20% of the globe’s real estate. Its vast geographies are inhabited by 1.4 billion people, including a giant and aspirational middle class — although the latest demographic clues suggest that population growth might now have peaked. Many real estate funds, both domestic and cross-border, are bullish on the country, says James Macdonald, head of Savills research for China. “We are seeing a lot of investors interested in new economy sectors including logistics — both dry and cold; life sciences and data centres — though the latter is challenging to deploy capital; as well as increasing interest in the multifamily sector, still at a nascent stage of development.” He notes that longer term traditional investors are seeking out opportunities for the discounted pricing of commercial assets, and increasingly looking at debt deals.

Yet international players hoping to break into China for the first time this year may struggle to gain a foothold, Macdonald warns. “China has become incredibly competitive. Commercial asset yields are low compared to the cost of borrowing with investors switching to niche sectors which require a lot more specialist knowledge and due diligence,” he says. “Good asset management teams are essential and developing them is challenging. Just getting in and out of the country to carry out site inspections can also be difficult at the moment.” He adds: “The best way is really to go with a trusted partner who already has experience and a team on the ground.”

The importance of cross-border partners is a recurrent theme across the region. In Japan, Diamond Realty Management, a fully-owned subsidiary of Mitsubishi Corporation, launches and manages funds for both domestic and international institutional investors interested in Japanese property. Meanwhile, its US arm helps Japanese capital participate in North American opportunities. A sustainable investment manager which targets key secular trends, recent achievements include a slate of positive GRESB outcomes for its funds and the execution of a series of green loans. In the US, the firm launched a new logistics development fund at the end of 2021, as it continues to generate value for its investors. “It is important for overseas investors to identify investment managers that have the necessary people, processes and expertise in place to execute strategies which are in line with their investment criteria,” Suchad Chiaranussati, chairman of pan-Asian investment manager SC Capital Partners, says. “We are personally seeing tremendous interest in APAC from overseas and believe that Asian real estate offers very attractive risk-adjusted returns.” SC Capital Partners has expanded its core and core-plus offering in the region in recent years, which Chiaranussati says has caught the attention of European players. Its opportunistic fund series RECAP, meanwhile, focuses on logistics, senior living, data centres and credit, where Chiaranussati notes “the competition is getting stronger and stronger”. The firm’s experienced senior management team and access to local markets, however, stands it in good stead. “We see ourselves as more a ‘mid-cap’ player with a tailored and thematic investment approach, rather than a large capital allocator,” he says. The firm focuses most of its attention on the region’s developed markets, spanning Japan, South Korea, Hong Kong, Singapore, Australia and New Zealand. For Smith, these are the territories where international investors are likely to pool capital in 2022, as China remains out of reach. In terms of asset type, “industrial & logistics will be the favoured real estate sector, despite widely-publicised supply chain disruption. The sector itself has come to encompass a broader and broader range of uses including everything from straightforward manufacturing and storage to R&D, datacentres, high-tech manufacturing, last-mile delivery/urban logistics and temperature-controlled facilities.” Another global trend in evidence in Asia is the interest in so-called “alternative” assets. Life-sciences real estate, flexible offices, senior housing and multifamily are all likely to attract the international dollar.

However there remains less certainty around the asset types that once dominated the industry — ranging from traditional offices to high-end or tourism-related retail and hospitality. Smith says: “Regional retail and hospitality have come to rely heavily on cross-border tourism, particularly from mainland China, and without a resumption of travel it is difficult to see a way forward.” But there is one property type that everyone agrees on — and that is ESG-friendly real estate. For Smith, this may yet be the defining trend of 2022 in APAC investment. “Sustainable buildings across all sectors are finally attracting the attention of investors, developers and occupiers, as a rising tide of regulation and a growing awareness of ESG across the region force a rethink,” he says. “Net-zero pathways and the need for low energy buildings will become a priority over the next five to eight years. Mounting evidence of a ‘green premium’ suggests a tangible shift is taking place and investors don’t want to be left behind.”

Suchad Chiaranussati, chairman SC Capital Partners

Simon Smith, Savills’ head of research Asia-Pacific

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