As 2019 looms, Prospects picks out a few factors which real estate investors ought to bear in mind for the year ahead. Despite fears that the cycle has reached its peak, 2018 is close to ending without market mishap. Will we say the same this time next year?

1: Growth is slowing in mature markets

Real Capital Analytics data for the 12 months to September show falling transaction volumes in all major Asia Pacific markets except Hong Kong, which was skewed by the sales of the Link REIT portfolio and The Center, totalling $8bn, and South Korea. Overall sales of income producing properties were down 25% in the third quarter.

Stock markets across the globe, led by the US, have slumped. There is still a huge amount of institutional capital committed to real estate, but it will be interesting to see if managers try to get it spent before the market turns, or sit on it for a couple of years.

2: A brighter outlook for emerging markets

As investment markets grow more turgid and interest rates rise, prospects for cap rate compression are limited. Investors will need to look for growth and emerging markets offer this: they have growing populations, rising wealth and demand for real estate of all kinds. Emerging market currencies are close to to their all-time lows, making for cheaper assets. In Asia, Vietnam is a particular highlight, as it attracts manufacturing from more mature markets and develops its own consumer market. New legislation makes investing in India safer than ever and it offers both growth and scale.

3: Proptech – the future is here (finally)

It is estimated that $3bn will be invested in proptech ventures this year and real estate players have started to take it seriously at last. Brookfield has set up its own venture capital unit, which will invest $200-200m over the next three years to invest in tech start-ups. Proptech presents a tremendous opportunity for developing markets in Asia, as they can hurdle mature markets, where investment in new tech is not weighed against the sunk costs of existing stock.

4: The rise of Japan

Real estate has been waiting for more than a decade for Japanese institutional investors to move overseas. In that time, Japanese pension and insurance funds have been overtaken by the South Koreans, Chinese, and Singaporeans. However, the decision of Japan’s $1.3trn Government Pension Investment Fund to award its first global real estate mandate is a landmark. GPIF and its peers have the capacity to invest tens of billions of dollars over the next decade. Capital-raisers need to start booking their flights to Tokyo now.

5: Election year

Next year could be one of political upheaval, with general elections in India, Indonesia and The Philippines as well as House of Councillors elections in Japan. The one for investors to look out for is India; the government of Narendra Modi has been very business-friendly and introduced a number of reforms beneficial to real estate in particular. However, a lack of significant improvement for India’s poorest has been reflected in opinion polls.

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Simon Smith