Total regional investment volume in 2022 is expected to reach the 2019 peak, and even exceed it if sufficient assets are brought to market. The competition to secure assets is likely to intensify as investors continue to prioritise capital deployment, cross-border investment activity increases, and international travel resumes.
Creative investment and asset management strategies could be rewarded with less competition and more opportunities to boost returns.
The investment landscape continues to shift in response to impacts of the pandemic as investors increasingly look outside the box to secure strong returns, some focus areas include:
1. “Through-the-cycle” opportunities. Over 80% of capital raised in 2021 was targeted at multifamily and industrial assets and approximately 10% targeted office and retail assets2. This is clear evidence of investors adopting “through-the-cycle” strategies, targeting sectors with strong fundamentals and stable cashflows.
2. Repositioning of assets through refurbishment and then subsequent re-leasing. With stronger occupier demand and more limited supply, there is a window of opportunity for investors to refurbish and reposition assets before the new wave of development is underway. This strategy would hit mark with occupiers too – and meet their increased demand for all things wellness, technology and sustainability. The growth of green capital and more extensive ESG requirements of potential fund investors suggest this strategy would be mutually beneficial.
3. Core office buildings in major gateway markets. These assets always drive good returns due to longer weighted average lease terms, blue chip tenants and flight to quality by occupiers. However, yield compression will likely subdue, at least at the market level and so investors should reset return expectations accordingly, especially considering the modest rent growth outlook over the next few years which could produce negative reversionary rents.
4. Industrial ‘build to suit’ opportunities. These abound across the region as occupiers seek to diversify risk, optimise the blend of efficiency and responsiveness in their supply chains, or re-shore mission critical elements.
5. Physical retail spaces. Several markets across the region, including China, India and South East Asia, lack physical retail space and so longer-term opportunities in these markets should not be ignored.
6. Emerging markets - data centres and multifamily. These are the largest growth opportunities in the near term, with life sciences growing rapidly. Japan boasts the largest and most mature multifamily sector in the region, followed by Melbourne and Sydney, while the sector is starting to gain traction in India and certain cities in mainland China.