Asia Pacific real estate investment to rebound in 2021: JLL

Professional services firm specialising in investment management JLL has forecast that Asia Pacific real estate investment will continue to rebound in 2021 with direct transactions to rise by 15 to 20 per cent year-on-year.

Alternative asset classes like logistics, multi-family and data centres are also likely to drive investment activity this year, it said. Besides, office, retail and hotel investment deals are forecast to increase in tandem with economic growth. Office assets will remain core for most investors, but JLL expects more value-add strategies to emerge with demand for flex space, healthier buildings with more collaborative spaces to increase.

The majority of Asia occupiers have returned to the office but expect remote working to rise by one day per week, according to JLL estimates.
In 2020, real estate investment volumes declined by 20 per cent but were buoyed by a final quarter recovery, in which transaction levels remained flat year-on-year.

According to the JLL Capital Tracker, north Asia markets proved to be the most resilient in the fourth quarter. China (plus 21 per cent), Japan (plus 37 per cent) and South Korea (plus 16 per cent) all recorded higher transaction volumes quarter-on-quarter due to stronger economic recovery and deep pools of domestic capital.

Elsewhere in the region, a rebound in India investment transactions was supported by robust activity in the REIT sector.

Logistics and multi-family investments increased year-on-year in 2020, according to JLL, rising 29 per cent and 26 per cent respectively. These asset classes comprised nearly 30 per cent of total volumes, signalling how attractive they are to investors.

By comparison, hotels, retail, and office transactions were the most affected, falling over 25 per cent year-on-year.

"Investors undoubtedly faced a challenging operating environment in 2020, but our interactions have confirmed that they refocused strategies and reaffirmed their commitment to the region," said Stuart Crow, CEO for capital markets in Asia Pacific at JLL.

"Given that transactions approached pre-pandemic levels in the fourth quarter, we expect investor confidence to grow in 2021 as capital adapts and the longer-term opportunities in the region become clearer," he said.
In the coming years, the prospect of an extended period of low returns and low interest rates is expected to further compress yields for various asset classes.

Logistics assets in most cities are forecast to provide higher yields than office assets yet face lower income volatility. Besides, lower borrowing costs will offer wide spreads to compensate for lower rental growth.

"While most investors are still under-allocated to these sectors, we expect these classes to become a core part of their portfolios over the next few years," said JLL.

"Another theme in 2021 could be a shift in asset allocation towards more opportunistic and value-add strategies," it said.