Tokyo residential, Sydney logistics properties are institutional investors' favourites for 2022

Fiona Lam

Published Fri, Jan 14, 2022 · 12:51 PM

INSTITUTIONAL investors that are planning to allocate more capital to real estate continue to find the Asia-Pacific (Apac) region the most attractive, with Tokyo residential assets among their top picks, according to poll findings published on Friday (Jan 14).

The annual survey, which focuses on non-listed real estate funds, also found that industrial and logistics have overtaken offices to become the most preferred sector in Apac, for the first time on record.

The Investment Intentions Survey is conducted by 3 organisations: the Hong Kong-based Asian Association for Investors in Non-Listed Real Estate Vehicles (Anrev); the European Association for Investors in Non-Listed Real Estate Vehicles (Inrev); and the Pension Real Estate Association (Prea), a non-profit trade association for the global institutional real estate investment industry.

The 2022 edition surveyed 99 respondents globally with a combined total assets under management of at least US$980 billion; they comprised 91 institutional investors and 8 funds of funds managers from 20 countries.

Separately, in a market outlook report this week, CBRE forecast a record year for Apac commercial real estate investments in 2022, driven by steady economic growth and pent-up investor demand. The firm foresees the region's total investment volume this year to grow at least 5 per cent to more than US$150 billion, surpassing the pre-pandemic high of US$142 billion in 2017.

Strong investment activity from close-ended real estate funds, real estate investment trusts (Reits) and institutional investors are likely to drive this recovery, CBRE said. "It is estimated that institutions in the region have up to US$500 billion in equity on their balance sheets awaiting deployment," it added.

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Respondents in the survey by Anrev, Inrev and Prea said that access to specific property sectors, such as industrial and logistics, as well as to geographic destinations like Japan and Australia, were key reasons for investing in Apac real estate markets via non-listed real estate funds.

Anrev's director of research and professional standards, Amelie Delaunay, noted that the latest poll results also "revealed intriguing shifts towards core and value-added strategies as well as the growing importance of ESG (environmental, social and corporate governance) considerations, including net-zero carbon commitment and DEI (diversity, equity and inclusion), when investing in the region".

Tokyo, Sydney and Melbourne are the Apac region's top 3 investment destinations for this year, according to the survey. Both Tokyo and Sydney tied for the pole position, with 76 per cent of the investors intending to invest in the 2 cities, while Melbourne ranked third. Osaka replaced China Tier 1 cities in the fourth spot, while the latter fell to the sixth position. Seoul placed fifth in the 2022 survey.

As for the preferred city-sector combination this year, Tokyo residential properties led the pack with 64 per cent of institutional investors indicating their preference.

The industrial and logistics sector in both Tokyo and Sydney tied for the second spot, with more than half of the respondents saying they plan to invest there. Following closely are Seoul's industrial and logistics properties as well as Osaka's residential sector.

Overall, offices are no longer the most preferred property type in Apac, with 73 per cent of institutional investors favouring it for 2022, a record low in 9 years for the sector, Anrev said in a press statement.

Sharing second place with offices was the residential sector, marking another first for the survey; likewise, 73 per cent of the respondents indicated their intention to invest in housing in the region this year.

Industrial and logistics real estate is now the hot favourite, garnering interest from 79 per cent of the respondents this year.

Similarly, CBRE's head of capital markets for Asia-Pacific, Greg Hyland, said in a Jan 13 press statement that logistics assets in Apac "remain keenly sought after by investors in 2022". At the same time, "interest in premium offices that target new-economy tenants is expected to strengthen, supported by the return to the office and occupier's requirements to meet ESG commitments", he added.

In terms of risk appetite, Anrev noted that institutional investors in Apac again highlighted their preference for core strategies in 2022, with 38 per cent of the survey respondents selecting this option. Value-add investment strategies came next at 34 per cent.

Some 28 per cent of investors view the opportunistic style as the most attractive for real estate investments in the region. This is "a sign that investors are willing to bear more risks with the hope of getting higher returns", which also reflects a positive outlook for Apac markets, Anrev said.

The poll also found a gap of 120 basis points between current allocations (8.9 per cent) and target allocations (10.1 per cent) to real estate, which suggests that institutional capital will continue to flow into the asset class this year, Anrev added. About 6 in 10 of those surveyed expect to increase their allocation to real estate over the next 2 years.

Some 70 per cent of them will increase their allocation in Apac within the next 2 years, compared with the US (64 per cent) and Europe (61 per cent).

"Investors in Asia-Pacific identified enhancing returns, diversification benefits of real estate in a multi-asset portfolio and enhanced income as the top reasons to invest in real estate," Anrev said. Meanwhile, those in Europe and North America cited the diversification benefits of real estate in a multi-asset portfolio as the main reason for investing in the asset class.

The Business Times earlier reported that competition for real estate deals in Apac remains stiff with bids coming in high, amid a deluge of capital targeting real estate in the region. Another bumper year could thus be in store for real estate investment sales in Apac, with Singapore, South Korea and Australia among the hotspots wooing swathes of capital.

ESG looks set to be an increasingly key factor in investment decisions in 2022. The Anrev, Inrev and Prea survey found that globally, 68 per cent of institutional investors consider a net-zero commitment to be an important feature when investing in a non-listed real estate fund.

About 86 per cent of those polled also said they pay close attention to a fund's environmentally and/or socially responsible investments. Apac has the highest proportion (100 per cent) of investors indicating that "promoting ESG is important", versus those in Europe (79 per cent) and North America (56 per cent).

Separately, CBRE's global head of investor thought leadership and head of research for Asia-Pacific, Henry Chin, noted that active asset management and enhancement with a focus on ESG and repositioning properties will be prominent themes for investors in 2022. This will be fuelled by narrowing prime yield spreads and an emphasis on rental income, he said.

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