Evolving global megatrends are opening up new opportunities across the Asia Pacific region; how can real estate investors profit in 2024?

Simon Smith, Head of Research and Consultancy, Asia Pacific, at Savills says: “One of the effects of several years of market upheaval is that real estate investors are looking at a broader range of strategies than ever before. Real estate is being transformed by demographics, environmental considerations and technology.

“The investment themes below are not the only strategies investors are considering, but they offer scalable opportunities and are supported by strong demand. Underlying all of them is Asia’s continued growth.”

Data centres

The Asia Pacific region is undersupplied with data centres and the growth of e-commerce, 5G networks and AI are contributing to accelerated demand.

AI in particular is adding to demand for much larger data centres, however centres supporting AI do not necessarily need to be built near their customers, opening up potential in lower-cost regions. At the same time, data protection laws which require data to be held within a jurisdiction mean data centres will be needed everywhere in the region.

Real estate investors and data centres specialists have taken note. Last year data centre projects worth $15 billion were started in Asia Pacific, according to MSCI, with a further $9 billion getting underway in the first half of this year.

Brown-to-green retrofits

This is already one of the dominant themes in European real estate markets and is set to become a lot more important in Asia Pacific too. A combination of tenant demand and regulation is driving asset owners to bring buildings up to higher environmental standards via retrofitting and refurbishment.

There is a great deal of variance across markets, but Asia Pacific does not have the same regulatory pressure to retrofit rather than rebuild as in Europe. However, regulatory pressure is growing and there is considerable pressure from occupiers.

Sustainable building certification is a must for multinational tenants and this is reflected rents. Savills research last year found a rental premium for green-certified office space in most major Asia office markets, with premia ranging from 2.3-18.6% depending on the market.

Higher energy costs mean energy-efficiency upgrades are more cost-effective than ever. Asset owners might consider low energy lighting, upgraded building management systems, HVAC upgrades or solar PV panels amongst other measures to help them gain certification.

‘Living’ sectors

Residential in all its forms is the largest real estate sector globally, accounting for one-third of all global transactions in 2022 according to MSCI and also the one with the most consistent demand. Whether it is multifamily rental, student housing, senior housing or co-living, there is demand across the region.

The widest demand is for rental housing. In China, the sector is strongly supported by the government, while in Australia low vacancy rates are driving up rents and encouraging new supply. Meanwhile Japan remains the largest multifamily rental market in the region, with steady demand from renters and investors.

Both student accommodation and senior housing are developed sectors in Australia, however potential and potential obstacles to investment vary elsewhere. Nonetheless, the fundamental drivers of ageing populations in developed markets and growing student numbers in India and Southeast Asia should support growth.

Debt

In a difficult operating environment, investors are looking to protect themselves from downside risks and so are turning to private real estate debt as an investment. At the same time, banks are becoming more reluctant to lend to real estate, especially for non-vanilla loans.

Non-bank lending now accounts for half of all US real estate debt and 40% in Europe. In Asia Pacific the percentage is tiny, but a move towards private debt has already started in Australia, with non-bank lending now accounting for 15% of real estate debt.

A number of institutional real estate investors and private credit specialists have begun lending in the region, with direct lending as the preferred strategy.

Further reading:
Asia Pacific Hospitality Spotlight November 2023

Contact us:
Simon Smith