What’s in store for Asia Pacific real estate in 2018?
JLL anticipates increasing investor interest in India; predicts impact of technology will be felt across real estate landscape
VIETNAM, 4 January 2018 – A swath of blockbuster real estate deals hit the headlines in 2017. Hong Kong recorded the world's highest transaction for a single office block with the sale of The Center for US$5.2 billion; hotel conglomerate Accor acquired Australian Mantra Group's portfolio of serviced apartments for US$1.2 billion; and CapitaLand Investment Trust bought Singapore's Asia Square Tower 2 for US$1.5 billion.
Looking ahead, JLL research projects that Asia Pacific transaction volumes will grow five per cent to reach US$135 to US$140 billion in 2018, driven by continued momentum in core markets and increased interest in developing markets.
So what should real estate investors and occupiers look out for in 2018? JLL reveals some of the trends that will shape the year to come.
1. Indian real estate will be on the hit list for more global investors
Institutional players targeted Indian real estate in several high-profile investments in 2017, with Singapore's GIC purchasing a 33 per cent stake in a unit of DLF Cyber City for US$1.4 billion. The real estate arm of global insurer Allianz also announced its partnership with India's Sharpoorji Pallonji Group to establish a fund worth US$500 million to target India's office market.
India will continue to be the top developing market for investors in 2018, says Dr Megan Walters, Head of Research, JLL Asia Pacific: "India's Tier 1 office and retail sectors are projected to show the highest total returns in 2018. We've seen the end of the short-term disruption in India resulting from reforms such as demonetisation and the implementation of Goods & Services Tax. 2018 may be the year for investors to consider a strategic entry into India, given its positive long-term fundamentals and economic growth."
Meanwhile, Asian investors will continue to invest outside the region in 2018 due to the large amounts of capital that local markets are unable to absorb. Overall, investors from Asia spent more than US$26 billion on property in the US and Europe in the first three quarters of 2017.
2. Alternatives will be a choice pick for real estate investors
Investors will seek opportunities in the alternative real estate sector such as aged care/senior housing, student housing, education, data centres, and self-storage facilities, to diversify their portfolios, and for long-term growth.
"We're observing growing interest and a huge opportunity for alternatives real estate. Demand in these sectors clearly outweighs supply, and the demographic demand drivers in the region are growing quickly. Yields on self-storage facilities are attractive compared to other traditional asset classes, ranging from five to seven per cent in Tokyo and Singapore, five to eight per cent for Australia, and around eight percent in China and India," says Dr Walters.
3. Technology will increasingly impact the way we use real estate
Proptech – the convergence of property and technology – is the latest disruptor in real estate and is likely to pick up steam in 2018. Asia Pacific proptech startups have already received 60 per cent (US$4.8 billion) of the US$7.8 billion raised by global proptech start-ups from 2013 to 2017.
Jeremy Sheldon, Managing Director, Markets and Integrated Portfolio Services, JLL Asia Pacific, says: "In the long-term, digitisation of services, Internet of Things (IOT) adoption and automation will have a significant impact on corporate real estate strategy, team structures and processes. The introduction of IoT – smart systems and devices operating over a network – will drive greater transparency of real estate portfolio utilisation and performance. Smart buildings will help both building owners and occupiers improve performance and save costs."
4. Companies will design cool offices in the war for talent
While managing costs remains a priority for most businesses, so is access to talent. With organisations using the workplace to boost employee engagement and attract and retain talent, there will be a continued rise in companies using co-working spaces in 2018. Those that offer high-tech, personalised and innovative space offerings – such as collaborative workspaces, food and beverage, gyms and wellness areas – that create a human-centric experience will stand out and attract the best in the war for talent.
"The shift to creating a holistic user experience is beginning to transform office space. The workspace of the future is one that can meet employee needs, while driving effectiveness and engagement levels," says Mr Sheldon.