Asia Pacific multifamily investments to accelerate despite COVID-19
First half 2020 investments in Asia Pacific multifamily or build-to-rent sector on par with 2019 total
Investment to accelerate into 2021 as investors seek defensive assets, diversification and capitalise on low interest rates
China and Australia present new opportunities as attitudes towards renting evolve
SINGAPORE, 11 November 2020 – Investors will allocate more capital into the Asia Pacific multifamily sector, residential buildings held in unified ownership with units to be separately let, beyond 2020 as the asset class becomes a core component of regional real estate portfolios. According to JLL (NYSE: JLL), multifamily (build-to-rent) investments in Asia Pacific totaled US$6.7 billion in the first half of 2020, approaching the volumes recorded in full year 2019, as investors seek defensive assets and shift towards structural capital deployment strategies.
The sharp increase observed in the first half was attributable to recent cross-border portfolio deals in Japan, including strategic deployments by Blackstone. The Japan multifamily sector currently accounts for over 95% of available multifamily stock in Asia Pacific, but JLL estimates that with a sharp pick up in new supply in China and Australia, the Japan proportion will decline to 85% in 2023
“Asia Pacific’s multifamily sector has solidified its status as a structural play for global investors,” says Regina Lim, Head of Capital Markets Research, Asia Pacific, JLL. “Investors understand that multifamily demand will be driven by both demographic shifts and institutional support, which will ensure that fundraising will further accelerate in traditional markets like Japan and emerging renting markets like China, Australia and Korea.”
According to JLL Research, multifamily investments have accelerated throughout the COVID-19 crisis due to growing appetite for defensive assets. However, as investors continue to reimagine their strategies, JLL forecasts several key themes to gather momentum and reinforce the structural shift occurring in the sector beyond 2020.
Surging appetite for alternative real estate: The ongoing appeal for real estate and growth in alternatives will facilitate the expansion of Asia Pacific’s multifamily sector in established (Japan) and emerging markets (China and Australia). Institutional investors need to deploy dry powder capital and are seeking complementary real estate to the traditional sectors including office, industrial and retail, where competition for limited core assets has reduced opportunities.
Diversification benefits: Multifamily asset returns have low correlation with traditional property sectors and can act as a suitable portfolio diversifier. Furthermore, JLL expects investors will benefit from its structural rather than cyclical nature, potentially reducing overall portfolio volatility and enhancing risk-adjusted return.
Lower return environment. In Asia Pacific, commercial real estate income returns have historically been higher than from residential assets. However, as commercial returns have fallen due to yield compression, the case for multifamily has strengthened in recent years. Given this, some developers may switch some planned projects from a build-to-sell residential model, to one where assets are retained as a multifamily product for future sale to institutional investors.
Supported by a variety of structural influences, multifamily fundraising is set to further accelerate beyond 2020. JLL estimates that global funds will increase their exposure to Japan multifamily assets and look to capitalize on a new generation of renters that is creating demand in China and Australia.
“The multifamily space is poised to evolve rapidly, led by changing societal attitudes to renting in markets like China and Australia. We expect ongoing government policy changes to further support renters, demonstrated recently by China’s policies to create 750,000 rental apartments and Australia’s amendment of tax laws to facilitate new projects. There is room for yield compression in Asia as the market matures. In other cities outside Asia, multi-family yields are already below office yields.” says Lim.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion in 2019, operations in over 80 countries and a global workforce of over 92,000 as of September 30, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.