Old, outdated properties sitting on US$40b of untapped value in Asia-Pacific: JLL

REAL estate investors and landlords of older assets may be missing out on income opportunities and cost savings if they do not upgrade or repurpose their buildings, according to a JLL report.

Across the Asia-Pacific, rental rates for aged and outdated buildings are 10-40 per cent lower than well-managed, up-to-date properties in similar locations, the real estate consultancy's research found.

The difference in rates may widen when newer buildings designed for the post-pandemic world enter the market, JLL said in a press statement on Tuesday.

Given this, the firm estimated that there could be more than US$40 billion worth of unrealised value in ageing and underperforming properties in the Asia-Pacific. That is considering half of the investment properties in the region's prime locations are over 20 years old.

Older buildings' energy and maintenance systems are often less efficient, leading to increased operating costs.

The Covid-19 outbreak has also changed market dynamics and tenant expectations, which means many existing properties will no longer yield the same values as they did before the pandemic, said JLL Asia-Pacific's head of asset development Andrew Macpherson.

Landlords and investors alike are "increasingly aware of the need to enhance their built assets, ranging from design improvements to extensive upgrades, and even repositioning or repurposing the entire property", so as to attract tenants and meet their evolving demands, he added.

The region's offices, malls, hotels, residential buildings and industrial facilities are at risk of losing relevance without asset enhancement, according to JLL's Unlocking Value in Real Estate report.

Those five sectors also have the most potential for asset enhancement, driven by increased demand for health and wellness features, an enhanced "human experience", sustainability, and technology tools, the firm said.

For instance, workplaces should be able to accommodate new modes of working, such as safe and flexible spaces, and offer wellness amenities and new ways of charging for leases. Singapore remains a key gateway location for global firms to set up their headquarters, and there is rising demand for high-quality Grade A assets as occupiers increasingly focus on their staff's health, well-being and overall experience, said JLL Singapore country head Chris Archibold.

In the retail sector, malls must move quickly to respond to the accelerated rise of e-commerce, which has implications for the size and use of space, JLL noted. The retail tenant mix is also changing, with more food and beverage players and experiential retail features entering the scene.

Industrial properties will need to evolve their warehousing and logistics capabilities to cater to same-day delivery, more automation and robotics, as well as increased sustainability targets. Meanwhile, certain older hotels are being converted and repurposed into co-living spaces or serviced apartments, while some are adopting property technology (proptech) more quickly to improve operational efficiency, JLL said.

In the residential sector, there are opportunities to develop co-living, senior accommodation, student housing and mixed-use developments, while incorporating work-from-home and other lifestyle trends, the consultancy added.

For investors and building owners, the key challenge now is how they should define and implement the right scope of asset enhancement, to deliver the best returns over a specific investment time period, said Mr Macpherson.

"Staying up to date with market trends and keeping an eye on the impact of innovation, coupled with the extensive use of data, benchmarking and analytics will enable investors to identify the optimal enhancement strategy, resulting in an increase in asset performance and value," he noted.

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