As property markets in North America and Europe mature further, there will be a “more urgent push for local, high-quality, institutional-grade, income-producing assets [in Asia-Pacific markets]”, says John Saunders, head of real estate, Asia, at global investment management firm BlackRock.
Asia-Pacific (APAC) real estate markets are improving swiftly in terms of liquidity and transparency, and the region is at a time of relatively firmer regional growth and strong historical returns. The focus on yields and reliable incomes is leading investors to properties in Japan, Australia, South Korea, and Singapore, he says.
Direct real estate investment in the Asia-Pacific is expected to experience “compelling and durable growth”, says Jim Barry, global head of real assets at BlackRock. The region could overtake Europe in size by 2020 and North America by 2022, according to the company's latest report - Asia Pacific Real Estate: Opportunities in Dynamic Markets.
Office properties remain the most sizeable and liquid segment in the APAC real estate market, accounting for 52% of commercial real estate transactions last year. The markets in Singapore, Sydney, and Melbourne see strong demand growth, limited supply and low vacancies. But Seoul, Brisbane, and Shanghai are experiencing weaker rental trends on the back of subdued demand and large gains in supply, says Bruce Wan, head of Asia real assets research at BlackRock.
Bengaluru and Delhi are leading flexible workspace penetration, with both cities having an 18% penetration in the office market. But there are also swift gains in other markets like Shanghai (8%), Singapore (4%), Hong Kong (3%), and Sydney (3%). “For landlords, flexible space offerings will likely be a permanent feature of the market, although the eventual penetration rate will be tested over the next office market cycle,” says Wan.
Alternative real estate sectors like senior care and healthcare also face strong growth prospects. But “the key issue for this sector remains the potential for reputational risk from operators and finding sufficient scale in a relatively small, nascent market segment”, he says.