Around 80% of funds will maintain their property exposure in HK
Investors expect Asia Pacific real estate investment to accelerate in 2021
HONG KONG, 2 September, 2020 – Asia Pacific real estate investment volumes are expected to rebound in the first of half of 2021 as investors continue to weigh up current market uncertainties due to the COVID-19 pandemic. Japan, Australia, South Korea and mainland China are likely to see more transactional activities next year.
Seventy-eight percent of foreign investors surveyed planned to maintain their exposure in Hong Kong, despite uncertainties in the market. Only 18% of survey respondents planned to reduce their exposure in the city.
Nelson Wong, Head of Research at JLL in Greater China, said: “A relatively weak income and capital value return outlook over the next 12-24 months, coupled with a subdued domestic economy, are weighing on investor sentiment towards Hong Kong. Despite so, close to 80% of institutional investors expect to maintain their real estate exposure in Hong Kong, reflecting that their longer-term views have stayed largely unchanged,”
“Meanwhile, recent transactions in the city clearly demonstrated that local and PRC investors or developers remain strongly committed to invest in Hong Kong, particularly for prime development opportunities. Sites in strategic locations and data centres are likely to remain the major targets given the prospects of long-term demand growth,” he added.
Around 84% of survey respondents expect transaction volumes in Asia Pacific to recover by the second half of this year. Deeper analysis shows 32% expect recovery in 2H 2020, while 52% expect recovery in 1H 2021. Nonetheless, with an expected recovery over the next six to 12 months, many investors have identified Japan, South Korea, China and Australia as the markets most likely to observe an increase in transactional activity into 2021. Asia Pacific real estate transaction volumes totaled $52.9 billion in the first six months of 2020, representing a decrease of $40.3 billion from the same period in 2019, according to Real Capital Analytics.
“Our interactions with clients reinforce the view that investors will continue to seek defensive locations and sectors where the rental collection experience has been positive. Japan and Korea remain high on the preferences for clients, as do sectors such as multifamily, non-discretionary retail and logistics. As transactional activity increases and pockets of value emerge from the crisis, we expect investors to move up the risk curve,” says Stuart Crow, CEO, Capital Markets, Asia Pacific, JLL.
In the third quarter of 2020, an unpredictable environment remains the biggest challenge in deploying capital, say investors. Approximately 60% cited uncertainty as driving a pause in their transaction activity. Specifically, underwriting assumptions, rent assumptions, vacancy forecasts, cost of capital and pricing uncertainty were cited as the primary reasons stopping investors deploying capital in the current environment.
As investors review their Asia Pacific strategies, JLL expects several key themes to gather momentum into 2021:
- COVID-19 accelerating pre-existing trends: Investors are planning to increase their exposure to logistics (81%), multifamily (58%), and alternatives (44%) between now and the end of 2021.
- Focus on capital value preservation: 82% of investors are planning to retain or increase their exposure to the core sectors, such as offices, by the end of 2021 with only 6% expecting to reduce their exposure.
- Going beyond core: While core (income investments) sectors remain central to strategies, investors also plan to increase their activity in the core plus (growth and income investments) by 42% and value add segments by 49% (growth investments) in 2021, due to both the limited opportunity to acquire assets and a rebalancing of relative risk and volatility.
- Transactional diversity to mature: Direct acquisition in private markets will remain the primary route for most investors, but many are increasingly looking towards different transaction structures in order to gain and increase their exposure to real estate. 32% of respondents are planning to increase exposure to platform or entity deals, while 29% plan to increase their activity in debt markets.
“COVID-19 is changing how investors access real estate. While we typically see a shift to more stable risk profiles during times of uncertainty, many investors are signaling not only a longer-term diversification strategy in Asia Pacific but are also reimagining how they transact in this region,” says Roddy Allan, Chief Research Officer, Asia Pacific, JLL.
JLL surveyed 38 global investors collectively holding close to $2 trillion of assets under management.
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