Tokyo has been named top city in Asia Pacific for cross-border investment in 2020, reveals real estate consultancy CBRE in a survey conducted between Dec 16 and Feb 16.
The low cost of financing, attractive yield spread, and level of transparency and liquidity helped Tokyo regain its status as the most preferred city in the region. With newly completed Grade-A offices — at a limited supply available for sale — investors are expected to purchase and renovate older Grade-B properties instead, CBRE finds. Logistics and multifamily assets are also highly sought after by investors due to strong fundamentals, it says.
Beijing, meanwhile, has debuted in third place. The office market continues to witness “relatively healthy demand and supply fundamentals compared to other Tier 1 cities in China”, states the report.
Out of 610 investors surveyed, 88% of respondents came from Asia Pacific, while the remaining 12% were from North America, Western Europe and the Middle East.
Although office rents in Singapore, in fourth place, and Melbourne, in ninth place, appear to be peaking in both markets, investors retain a strong appetite for “core or core-plus assets, which continue to be underpinned by healthy long-term fundamentals and strong liquidity”, it says.
Investors have also displayed stronger interest in Seoul, which came in sixth place, as they seek modern logistics assets, boosted by rapid e-commerce growth, particularly in the fresh food and fast-moving consumer goods (FMCG) categories.
The office segment still remains the most preferred sector for investment, despite factors weighing on the office rental outlook — growing concern over the late-cycle economy; a potential margin squeeze amid widespread disruption to business operations; and oversupply in selected markets.
Meanwhile, appetite for industrial and logistics assets continue to strengthen, with the sector expected to provide relatively higher gross total returns over the next three years (2020 to 2022), says the report. Demand for such assets has also been driven by e-commerce growth.
Investor demand for retail and hotel assets is expected to suffer amid falling rental income and a sharp fall in tourism arrivals, a result of travel restrictions amid the Covid-19 outbreak.
CBRE’s survey has also noted a rising interest in alternative sectors — nearly 7% of respondents intend to pursue opportunities in this segment. Interest in data centres rose significantly in the face of trends like Big Data, industry 4.0, Internet of Things, the introduction of 5G and the widespread adoption of cloud-based services.
However despite strong interest in the asset class, direct investment in data centres remain limited due to a lack of stock and various regulatory restrictions, observes CBRE. Data centre investment turnover in Asia Pacific between 2015 and 2019 totalled US$1.2 billion, only 1.5% of total industrial transaction volume.
Interest in cold storage facilities also rose among investors. The growing omni-channel distribution of groceries and fresh food are set to boost occupier demand for this asset in the coming years, notes the report.
Student housing is also one of the alternative asset classes attracting higher investor interest. Allianz and AXA committed A$700 million into an Australian student housing fund in 2019, while GIC purchased two student housing buildings in Australia in 2017.
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