Return of investor confidence as the region leads the economic recovery across the world
Following a subdued 2020 due to the COVID-19 pandemic, total real estate investment volumes (excluding development sites) in Asia Pacific are expected to bounce back in 2021 to approximately USD165 billion, which is about 90% of the 2019 level, according to Cushman & Wakefield. This rebound in investment activity in the region is supported by greater investor confidence as Asia Pacific leads the economic recovery across the world. The region is also riding on the positive momentum off the back of a surge in investments in the last quarter of 2020.
Real estate investors adopted a wait and see approach for the most part of 2020 as the pandemic swept across the world, resulting in a decrease of almost 29% in total investment volumes (excluding development sites) during the year globally as compared to the year before. Being the first region to be impacted by the virus, the Asia Pacific investment market took a hit in the first half of 2020 but momentum picked up in Q4 2020 with China and South Korea leading the region in terms of investment activity.
Philippine Investment Property Market
Taking cues from other global investment markets, the key to sustainable recovery of the Philippine investment property market is the proper implementation of effective economic stimulus programs and the nationwide roll-out of vaccination program to enhance consumer and investor confidence.
Claro Cordero – Director and Head of Research, Consulting & Advisory Services of Cushman & Wakefield in the Philippines said, “Despite the prevalence of relatively risk-averse attitude among key global and local investors, multiple economic factors likely support a gradual recovery in the Philippine capital markets: supportive fiscal policy and interest rate environment and availability of capital for debt and equity.”
Mr. Cordero further adds: “The Financial Institutions Strategic Transfer (FIST) Act has been passed as a key legislation to incentivize banks to dispose non-performing loans and assets and free up capital for infusion back into the system. While the landmark legislation is expected to invigorate the liquidity in the capital market, it will stimulate and enforce mark-to-market transactions which will further unravel the potentials of several high-ticket properties.”
This trend supports the growing preference for crisis-proof alternative assets such as logistics, data centers and other life-sciences industries, while similarly enhancing the potential of strategically-located properties for conversion into commercial use to support the anticipated growth in demand from the outsourcing and offshoring industry in the mid-term.
While the impact of work-from-home (WFH) on the occupancy needs remains to be seen, the fundamentals of the Philippine commercial property market remain sound, with vacancy levels still below the double-digit frictional vacancy rates, and with compressing rental yield rates, making it still an attractive proposition for investors.
Global Investment Landscape
As with 2020, global economies, leasing markets and capital markets will march to the tune of the pandemic situation this year, resulting in a high level of synchronicity across these different drivers of the real estate market. In contrast to the prior global recession, investment activity is expected to lead the leasing markets in the rebound of the global property markets due to the strong financial conditions globally.
David Bitner, Head of Global Capital Markets Research, Cushman & Wakefield said, “Global capital markets have labored under a yoke of uncertainty over the last year. 2021 promises to lighten that weight progressively at which point low base rates, high capital availability for debt and equity and attractive valuations relative to other asset classes suggest a far more rapid recovery than in past downturns.”
While global transaction activity is expected to remain restrained in the first half of 2021, the growing consensus that a widely-distributed vaccine by mid-2021 in most developed countries and some emerging markets, and the upward revision in economic outlook for the year are set to boost the level of investment activity in the second half of the year.
In terms of property types, logistics and multifamily assets have been the ‘pandemic winners’ and will remain attractive investment bets globally. However, the office and retail sectors will still present investment opportunities as they continue to evolve in line with changing working, living and shopping patterns.
Asia Pacific Investments
Across Asia Pacific, the region is expected to see increasing momentum in investment activity, though the pace of recovery will vary for different markets.
- Mainland China and Japan performed comparatively strongly during 2020, with relatively small declines in investment volumes last year. Combined with a strong Q4 2020 performance, they are likely to be the first to recover to pre-COVID-19 levels.
- South Korea had an impressive run in 2020, posting the highest annual investment volume since 2015. The robust investment activity in this market is expected to continue with overall volumes to be around the 2019 level with some upside potential.
- Singapore and Australia saw volume declines of 73% and 45%respectively in 2020, though 2019 was a particularly strong year for Singapore which exacerbates the size of the annual decline in 2020. However, both markets showed renewed activity levels towards the end of the year, suggesting a further uplift into 2021.
- While Hong Kong saw a similar uptick in H2 2020and volumes are expected to lift in 2021, they are still likely to remain subdued in comparison to the 2015-19 average of USD21billion.
- India saw a strong performance in 2020 and investment momentum is expected to be sustained as it attracts increasing attention from international investors.
From a property-type perspective, the following broad regional trends are expected to persist:
- Logistics will remain a key focus as e-commerce continues to flourish and supply chains evolve. The logistics and industrial sectors in Asia Pacific have a strong growth trajectory, also benefitting from its relatively lower cost base and growing working-age population.
- Data centres continue to offer tremendous growth potential, benefitting from the acceleration in cloud connectivity. Asia Pacific markets are expected to perform well as data center destinations given the rapid development of technology platforms and networks across many of its markets.
- Offices will still be a much sought-after investment asset, particularly those in prime locations. As companies calculate the impact of remote working on their office occupancy needs and begin to make longer-term commitments, the office market should see some increase in momentum in the second half of this year.
- Convenience/necessity retail and locally popular destination retail will remain resilient as they have proven during the pandemic so far. Experiential retail has been far more challenged due to pandemic restrictions, especially those retailers reliant on international travel and so are expected to take longer to recover.
Note: For more investor insights, please refer to Cushman & Wakefield’s The Signal Report: Investor’s Quarterly Guide to 2021.