Although threats to the economic climate are increasing globally, real estate investors in the Asia-Pacific region continue to generate stable returns. Thus, according to Jonathan Hsu of M&G, the total return in the real estate sector in this region is estimated at 8.7 percent in 2019.
Longer-term structural developments lead to overall resilient real estate markets in the industrialized countries of the Asia-Pacific region (APAC). These include weaker global growth, increasing geopolitical tensions, and a slowing Information Communication Technology (ICT) cycle. These factors led to an easing of monetary policy in countries such as Australia and South Korea. Interest rates and long-term government bond yields are likely to remain low in the short term against this background – the yield differential of real estate versus ten-year government bonds remains attractive. "Barring external resistance, the relative strength of the labor market and the promotion of digital and knowledge economies continues to drive stable growth in industrialized APAC countries. In the longer term, the ICT sector will benefit from the gradual global rollout of 5G telecommunications networks – especially good news for Japan, South Korea and Singapore", Jonathan Hsu, Head of Research Asia at M&G Real Estate, said.
Growing e-commerce promotes higher returns for logistics properties
The growth of Internet commerce in the region should drive demand for logistics space, especially in Australia, Japan and South Korea. Estimates say that 14 million square meters of additional warehouse space will be needed to handle the $120 billion in e-commerce sales predicted in industrialized APAC markets by 2023. "Logistics companies with a focus on private consumers are intensively looking for high-quality space due to ever-increasing automation and higher volumes of goods", Jonathan Hsu states. He also sees niche segments such as cold storage for grocery shopping over the net and health logistics as growth areas. However, the lack of quality, well-located warehouse space in the region is preventing real estate users from growing and expanding, he said. Location remains one of the most important factors, because transport costs usually account for at least half of the total costs of a logistics service provider.
Shift to knowledge-based economies strengthens demand for premium offices
Moreover, an increase in office jobs is expected in the APAC region as countries become more digitized and knowledge-based economies. As employee well-being becomes increasingly important to companies in such an environment, demand is growing for first-class office properties that offer not only high-quality space but also other benefits. "With attractive workplaces, companies can score points in the increasingly fierce competition for global talent. And investors who focus on core properties are optimizing the relative earnings stability and resilience of their investment by adding new prime office properties.", according to Hsu.
Population growth in gateway cities favors construction of multifamily housing
The unchecked population growth and the increasing number of office workplaces in large metropolitan areas lead to a permanent demand for multi-family houses in so-called gateway cities, i.e. in large cities such as Tokyo, which are regarded as hubs for an entire region. A tight labor market has led to the easing of hiring policies for foreigners and more dual-income households as more women re-enter the workforce. "Positive fundamentals for this sector should attract greater interest from foreign institutional investors – which in turn could lead to further interesting returns", expects the real estate expert. As a result, they say, the Japanese housing market is forecast to have a total return of 11.5 percent in 2019.