Pamela Ambler, head of investor intelligence and strategy, capital markets, Asia Pacific, JLL, moderates a panel discussion at the ULI Singapore Annual Conference along with Caleb Shen, senior managing director, Hines; Terence Tang, CEO, Atelier Capital Partners; Ee Lynn Chow, director, Asia Pacific, Ivanhoe-Cambridge; and Indran Thana, managing director and head of real estate, lodging and leisure, Southeast Asia and India, UBS.
(ULI Asia Pacific)
On September 24, 2024, ULI presented a panel discussion called “Capitalising Opportunities: Trends and Challenges in Built Environment Investments.” It brought together representatives of financial institutions, real estate investors, and developers to understand the complexity afoot in Asia.
Despite a global downturn in investor sentiment, Singapore continues to attract diverse portfolios thanks to its investor-friendly policies. Navigating higher-for-longer interest rates is tricky, particularly with its impact on forecasting and its impact on the real estate market. According to Caleb Shen—senior managing director, Hines—the direction of the interest rate change is more important than the size and speed of its movement. He said, “I think our view at Hines is that, in all likelihood, the interest rates will not go back down to pre-Covid-19 levels. Therefore, from a real estate perspective, instead of being able to deliver returns simply through the benefit of market-driven cap rate compression . . . it will be critical to drive returns by working the alphas through active asset management on the properties.”
In the Asia Pacific, recent stimulus measures in China—where the challenge is to spark demand rather than just to provide liquidity—warrant consideration. Since the Covid-19 pandemic, the risk premium has increased, making real estate trickier to navigate. Then again, geopolitical tensions have made the markets unpredictable. However, according to Terence Tang, chief executive officer of Atelier Capital Partners Inc., this mix need not spell bad news. He said, “All this political tension creates opportunities for Asian investors who can take a longer-term view. We are prepared to take a longer-term view because we are not a fund. We can go into any market where we think the returns will be there. After Covid-19, some global institutional investors are still trying to understand what risk premium to place in some Asian markets and are trying to get out from the markets that they do not want to be in now. That creates opportunities for Asian-based investors who are prepared to take a longer-term view.”
Markets in other countries remain ripe for investment. Research indicates that, in developed Asia, inflation strongly correlates to rental growth. Japan is facing higher inflation rates, and wage growth there is trying to keep up with pricing. In Australia, the demographic supports rental growth in prime submarkets despite elevated vacancy rates and high construction costs.
Developing markets in Asia also provide ample opportunities. In Southeast Asian economies, such as Thailand, Indonesia, Malaysia, and the Philippines, liquidity and institutional capital are important criteria to consider. Ee Lynn Chow—director, Asia Pacific, Ivanhoe-Cambridge Inc.—said, “India is a country that we feel is a bright spot in the APAC economy. If you look at the fundamentals—strong growth, high manufacturing (partly also due to the China Plus One strategy), domestic consumption, and urbanization—I think logistics benefits from 3PL and e-commerce demand, in addition to manufacturing.”
Other factors influencing the future of real estate development are megatrends, such as climate change, shifting demographics, and ESG principles. Moderator Pamela Ambler—head of investor intelligence and strategy, capital markets Asia Pacific, JLL—said, “Under evolving sustainability reporting standards, companies will be required to improve their climate targets. For investors, there is a huge opportunity when it comes to older buildings. Obsolescence is why, against the backdrop of a challenging fundraising environment right now, you have more opportunistic and value-add strategies in place.”
There are also new asset classes and growing demand for multifamily housing, logistics, and technology that can be included in investment portfolios. One interesting trend is the rise of data centers that blur the lines between real estate and infrastructure. Indran Thana—managing director and head of real estate, lodging and leisure–Southeast Asia and India, UBS—commented, “I think data centers are an interesting sector, and one that is in its nascency in the region. From a real estate perspective, you’re starting to see an increase in the number of groups that have some or all of the ingredients for success—well-located land, access to power and connectivity, development capability, making data centers a core part of their investor engagement strategy.”
In Asia, the real estate investment landscape is altering for several reasons, including fiscal policy changes across economies, the drivers of technology and sustainability, demographic shifts, and investor preferences. For investors navigating capital market, traditional asset classes and newer riskier options need to be considered as ways to make informed decisions in this dynamic landscape.
