Asia-Pacific real estate investment deals to rebound 15-20% in 2021: JLL

REAL estate investment deals in the Asia-Pacific may rebound by 15-20 per cent in 2021, led by North Asia, as investors seek assets with income stability, said real estate consultancy JLL in its 2021 Asia Pacific Real Estate Outlook on Dec 18.

They see 2021 as marking the start of a new cycle of real estate growth in the region, with investor interest rising especially for logistics and alternative assets such as data centres and multi-family or residential rental properties.

Hotel, retail and office investments are also expected to pick up as economies recover from the impact of Covid-19.

Although direct commercial real estate transactions fell 28 per cent in the first three quarters of 2020, declines were decelerating after the first half, in an encouraging sign, said JLL.

Transactions in Japan, mainland China and South Korea accounted for three-quarters of activity in the region in 2020, and JLL expects these markets to continue this dominance in 2021.

Meanwhile, as some intra-Asia Pacific travel resumes in 2021, cross-border investment flows are expected to contribute to recoveries in Australia, mainland China and Singapore.

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With a low return, low interest rate environment expected in the next few years, uncertainty over growth will make high-yield, low-growth assets more attractive, said the report. "If doubts continue to hang over commercial rental and capital value upside, investors are likely to focus more on cash yields, for which logistics outperforms offices in most markets in Asia."

More capital is also expected to be deployed into opportunistic and value-add investments. Real estate investment trusts (Reits) may continue to grow via acquisition, with JLL expecting 2021 "to be another record year for outbound capital from Singapore Reits".

A rise in transactions in 2021 also means price discovery. "Assets benefitting from Covid-related demand and longer-term secular tailwinds are seeing firm pricing, in particular for core assets. Where there is more risk, asset pricing is more impacted, with price adjustments greatest for opportunistic assets. We expect further yield compression for logistics, data centres and necessity retail assets."

And although the pandemic precipitated a shift to home working, JLL remains confident about the role of the office. Declines in office leasing volumes are likely to improve into 2021, to be broadly flat with 2020 levels.

But there will be a shift towards more quality space, with an estimated 40 per cent of Asia-Pacific office space is in need of refurbishment. "Minor or major capital value improvements - depending on the asset - could represent US$400 billion in unrealised value for investors pursuing value-add strategies."

In retail, challenges remain but non-discretionary retail will remain an outlier, holding up strongly in 2021.