Investment Opportunities Still Exist in Markets and Sectors With Strong Fundamentals, but Strategic Thinking and a More Granular Approach Is Required, Say Experts
Investors are having to “look laterally” to find opportunities for growth in the current market but can still successfully deploy capital, experts say, as ongoing uncertainty in the macroeconomic environment slows early-year momentum.
Speaking at a recent Cushman & Wakefield webinar, panelists from leading investment houses said rising interest rates and an inflationary environment had caused a "pause" in the market as investors re-weighted their portfolios within the current conditions.
Despite the slowdown, investor sentiment was leaning towards a cautious resumption of deal flow to Asia Pacific later in 2022 once global players from the United States and Europe had adjusted to the current conditions, said Regional Director, APAC Capital Markets at Cushman & Wakefield and webinar moderator Gordon Marsden.
"It is true that there are a large number of different economic circumstances ahead of us and trying to work out what that means for growth, interest rates and inflation is quite difficult right now,” Marsden said.
A survey of investor sentiment taken before and during the webinar showed that alternative asset classes, once considered a "hard to get into, hard to get out of" investment proposition, remained a key focus as traditional sectors continued their subdued recovery from the pandemic.
“What we are seeing is an increased granularity in sub-classes and sub-sub-classes such as data centers, cold chain, and infill and last-mile logistics as investors look for growth areas within alternative asset classes -- essentially alternatives within alternatives,” Marsden said.
Francis Li, International Director, Vice President, Greater China, Head of Capital Markets, Greater China at Cushman & Wakefield, commented, “We have seen increasing investor interest in alternative assets especially in life science parks in China, given the strong policy tailwinds. Policy and reform are crucial features investors need to be aware of, especially in the mainland China market. Major life sciences-related policies issued by the authorities in China are many, including Healthy China 2030, the establishment of industry clusters, the 14th Five-Year Plan and local provincial and city-level policies.”
Asked how they would split US$1 billion across different sectors, investors voted to allocate more to logistics than to office, with a significant additional allocation to alternatives including data centers -- a sector with solid tailwinds that is under-supplied -- and multifamily. Despite softening yields, over 35 percent believed the logistics sector remains fundamentally undersupplied, with a further 30 percent expecting positive but slower growth within the sector.
The focus on industrial and logistics was particularly evident in Greater China, where it was the largest sector by investment volume in Hong Kong SAR in H1 2022. In mainland China, industrial/logistics is currently the second-largest sector by investment volume, accounting for approximately 25 percent of the total investments in the first half of this year -- up from around 10 percent in 2020 and 2021, and only 2 percent in 2019, according to Cushman & Wakefield data.
Catherine Chen, Director, Head of Capital Markets Research, Greater China, Cushman & Wakefield said: “The living sector in Greater China is also gaining traction with increasing international investor participation in serviced apartments and hotel conversions. With the current restructuring of China’s property market, more people are becoming increasingly willing to rent, boosting demand in the rental housing market."
“Investors who are focusing on the long-term in sectors and markets that are fundamentally under-supplied and/or have solid tailwinds are less concerned about the current volatility,” Marsden said. “They are having to search harder for opportunities, but they are still there.”
- Laurent Fischler, Head of Investment APAC, Ivanhoé Cambridge
- Louise Kavanagh, CIO & Head of Asia Pacific Real Estate, Nuveen
- Anthea Lee, Chief Executive Officer, Keppel DC REIT
- Hamish MacDonald, Managing Director Real Estate, BlackRock
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