®

Emerging Trends in Real Estate Asia Pacific 2022
A publication from:

Emerging Trends
in Real Estate®
Asia Pacific 2022

Contentsiv
vi

Executive Summary
Notice to Readers

1
3
4
5
6
8
10
11
12
14
14
16
18
20
20

Chapter 1: A Brave New World
Services and Operations
Value-Add Thrives
Build-to-Core Still Hot
Decentralising CBDs
Australia: Key Themes
New Economy Drives Demand
Cash Flow Trumps Yield
China: Key Themes
China’s Mega-City Clusters
Demographics Drive Niche Plays
Distress: Still Waiting
The Green Premium
Japan: Key Themes
Data and Verification

24
27
28
29
30
31
32
33

Chapter 2 Real Estate Capital Flows
Development Prospect Rankings
Cross-Border Investment Returns
Global Funds Migrate to Real Estate
Sovereigns Turn to Asia Pacific
REITs Consolidate
Bank Debt Still Cheap
Green Finance Comes of Age

35
36
40
42
44
46

Chapter 3: Property Type Outlook
OfficeLogistics
RetailResidential
Hotels49

Interviewees

Emerging Trends in Real Estate® Asia Pacific 2022iEditorial Leadership Team
Emerging Trends in Real Estate® Asia Pacific 2022 Chairs

PwC Advisers and Researchers

Stuart Porter, PwCDavid Faulkner, Urban Land Institute

Australia
Alexandra Small
Andrew Cloke
Azam Malik
Bianca Buckman
Christian Holle
Devina Kusnadi
Ewan Barron
Jane Reilly
Josh Cardwell
Nick Antonopoulos
Matthew Lunn
Max Sangrigoli
Rachel Smith
Ross Hamilton
Scott Hadfield
Tony Massaro

Principal Author
Colin Galloway, Urban Land Institute Consultant
ULI Editorial and Production Staff
James A. Mulligan, Senior Editor
David James Rose, Managing Editor/Manuscript Editor
May Chow, Senior Vice President, Asia PacificDiwa Law, Senior Associate, Asia Pacific
Karen Cheng, Designer

Mainland China
G. Bin Zhao
Michael Ma
Sally Sun
Winnie XianHong Kong SAR
Paul Walters
Raphael Chu
Kanus YueDavid Kan

Emerging Trends in Real Estate® is a trademark of PwC and is registered in
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© 2021 PwC. All rights reserved. PwC refers to the PwC network and/or one
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see www.pwc.com/structure for further details.
© November 2021 by PwC and the Urban Land Institute.
Printed in Hong Kong. All rights reserved. No part of this book may be
reproduced in any form or by any means, electronic or mechanical,
including photocopying and recording, or by any information storage andretrieval system, without written permission of the publisher.
Recommended bibliographic listing:
PwC and the Urban Land Institute: Emerging Trends in Real Estate® Asia
Pacific 2022. Washington, D.C.: PwC and the Urban Land Institute, 2021.
ISBN: 978-0-87420-467-4
ii

Emerging Trends in Real Estate® Asia Pacific 2022

TaiwanJason LiuDavid Tien
Bonnie Ho

Indonesia
Brian ArnoldDavid Wake
Margie Margaret
Japan
Stuart Porter
Akemi Kitou
Eishin Funahashi
Hideo Ohta
Hiroshi Takagi
Koichiro Hirayama
Raymond Kahn
Soichiro Seriguchi
Takashi Yabutani
Takehisa Hidai
Takeshi Nagashima
Takeshi Yamaguchi
Luxembourg
Kees Hage
Robert Castelein
Philippines
Malou Lim
Singapore
Chee Keong Yeow
Magdelene Chua
Maan Huey Lim

Executive Summary

As real estate investors plan their2022 post-pandemic strategies, theroad ahead is fraught with uncertainty.
Transactions are rebounding after
nearly two years of lockdowns andtravel embargoes, but the contours of
the investment landscape in the Asia
Pacific have been reshaped—in someways profoundly—by pandemic-inducedchanges to the way we use real estate.
As the new dynamic unfolds, investors
are adapting in a number of ways:• Focusing on operations andservices. Today, commercial realestate is no longer regarded as aplain-vanilla investment held over time.
With yields continuing to compress andoccupiers demanding more, landlords
are becoming more proactive in asset
management, either by providing new
amenities for tenants or by investing inoperationally intensive asset classes
such as data centres.
• Pursuing value-add projects. As
markets evolve, many existingbuildings are becoming inefficient.
Buying to renovate has become one

way to arbitrage those inefficiencies,
whether through the use of technology,changing building usage, or upgrading
to a higher environmental standard.
• Investing in the theme ofdecentralisation. Central business
districts (CBDs) have traditionally
represented the biggest store of wealthin real estate terms, but the primacyof the CBD is no longer secure. Not
only do secondary business hubs
offer cheaper rents, but with many
employees now working at least parttime from their homes, employers are
responding by providing workplaces
nearer to where they live.
• Buying into the new economy.
Companies focused on the growing
digitisation of the economy, which areless inclined to locate in CBDs, are also
driving this trend. This includes bothout-and-out technology companies
as well as traditional businesses thatare digitally based, be they online
education, e-commerce retailing,or even logistics companies thatserve demand from internet-based
businesses.

Survey Responses by Country/Territory
30

26.9%

25

20
19.2%
16.8%

15

10

Source: Emerging Trends in Real
Estate Asia Pacific 2022 survey.
*Includes Indonesia, Malaysia,
Taiwan, Thailand, USA, Vietnam.

iv

11.4%

12.6%

5

6.0%

4.8%
2.4%

0

Emerging Trends in Real Estate® Asia Pacific 2022

Australia

China

Hong Kong

Japan

Philippines

Singapore South Korea

Other*

• Niche asset classes boost yields.
Investors have been buying niche
assets for years as a way to eke out
higher returns. This trend continues,
although it is now also seen as a way
to pursue demographic change acrosssociety. Retirement living is one
example, while work-from-home
networking requirements and millennial
shopping preferences are driving
demand for data centres and cold
storage facilities.
Last year, interviewees anticipated asurge in distressed assets in 2021,
especially from hard-hit asset classes
such as hotels and retail. So far, though,with a few notable exceptions (China,
for example, where a financing squeeze
has led developers to divest noncore
holdings), few forced sellers haveappeared. This is partly because banks—with the tacit support of governments—
have been reluctant to call underwaterloans. Otherwise, the sheer weight ofcapital seeking to buy real estate assets
has ensured that competition is strong
and bids remain high.
The push to make buildings environmentallyfriendly gathered pace in 2021 andpromises only to accelerate in future as
institutional buyers increasingly adopt
mandates requiring compliance withenvironmental baselines, and more
corporate occupiers require their let
space to meet higher standards. As aresult, landlords are moving to adopt newtechnology that not only increases
efficiency, but also measures and reports
in real time everything from electricity
and water use, to the flow of people inbuildings, to air circulation levels, elevator
usage, and maintenance issues.
In terms of capital flows, rising investment
volumes have targeted mainly assets inestablished gateway cities, as investors
seek safety in economically stable andliquid markets. Travel embargoes havemeant reduced cross-border purchasing,as well as a trend for Asia Pacific capital,
when it does venture offshore, to remain
within the region rather than migrating
to the West. Singapore was the largest
exporter of regional capital in 2021, withboth sovereign wealth and local real

Survey Responses by Geographic Scope of Firm

Pan-Asia focus
31%
Other focus

Global focus

45%

2%

Focused primarily on
one country/territory

22%

Source: Emerging Trends in Real Estate Asia Pacific 2022 survey.

estate investment trusts (REITs) bidding
aggressively for higher-yielding offshore
properties.

plentiful, its use tends to be reserved fordeals involving noncore assets or highleverage.

Tokyo placed top in this year’s investment
prospect rankings, swapping places with
Singapore, which featured first in both the2020 and 2021 surveys. Tokyo’s enduring
popularity is down to a variety of factors:
a stable economy combined with a deepand liquid market, resilient asset values,
and a long track record of better-thanexpected returns. While cap rates seem
thin, low interest rates generate yieldspreads that outperform markets withapparently better fundamentals.

The impact of the COVID-19 pandemic
on individual asset classes has been insome cases profound.

On the development side, Singapore
topped the table, boosted by expectationsof supply shortages due to a limited
pipeline of new development sites andthe withdrawal of stock from the market
for redevelopment purposes. One fundmanager predicted a 30 percent increase
in rental growth over the period to 2026.
Seoul’s ranking of fourth reflected highdevelopment yields and soaring
transaction volumes due mainly to buying
by domestic institutions that culminated in
US$10.6 billion worth of deals in the third
quarter of 2021—the highest in the entire
Asia Pacific region.

Office: Office has been the go-to asset
class for many years, but its popularity
has suffered lately as investors question
its staying power in the age of corporate
work-from-home policies. At the sametime, many investors are convinced thatthe impact will be limited in Asia and so
are now taking contrarian bets, focusing
on well-located, good-quality assets.
In order to attract and retain talent,
employers are moving to provide
workplaces that are both less dense (forhealth and wellness purposes) and alsooffer collaborative facilities andexperiential spaces. In addition, despite
the fact that coworking facilities haveseen reduced usage as workers shy
away from shared workspaces, flex
offices are becoming increasingly
popular ways for occupiers to hedge
uncertainty about future staffing
requirements, as well as to minimise
exposure to long-term leases of
conventional office space.

Bank finance, meanwhile, remains freely
available, with cost of capital either
trending down or remaining stable acrossmost markets, apart from China.
Availability of nonbank finance has also
improved, although with bank capital so

Logistics: The surging popularity oflogistics as an asset class is due toa combination of factors: structural
undersupply of high-quality assets,
the evolution of more sophisticatedsupply chains, and the rapid growth inEmerging Trends in Real Estate® Asia Pacific 2022 v

e-commerce retailing, catalyzed recently
by pandemic lockdowns. Transaction
volumes have boomed this year, butinvestor appetite is undiminished despiteongoing yield compression. The extent
of the shortfall in modern warehousestock in the face of rapid demand growth
ensures strong ongoing demand for new
product. Productivity benefits offered by
new types of warehousing technology are
another catalyst that is accelerating theobsolescence of aging infrastructure.
Retail: The explosive growth of
e-commerce retailing in the wake ofwidespread lockdowns has created apervasive sense of negativity towards
conventional retail assets, exacerbatinga decline that had started even before
COVID-19 arrived. At the right price,
however, any asset becomes attractive,
and the sector seems to have hit thatpoint around the middle of 2021, as thirdquarter retail transaction volumes spiked.
Values and cap rates have moved toa point where repurposing becomesrealistic economically, and a significant
minority of investors now see the current
downtrend as a rare opportunity to buy
and reposition underperforming but
well-located facilities. Tenant mixes
will change, therefore, but there arestill plenty of uses for CBD retail sites,
even if not all of them are focused onconventional retail shopping.
Residential: Weak economic
fundamentals, combined with rising
inflation, make the residential sector
appealing to institutional capital, andmany funds are now looking to participate
in the Asia Pacific region’s growing
multifamily sector, especially in theleading markets of Japan, Australia, andChina. That said, several interviewees
questioned the fundamentals ofmultifamily investing in the Asia Pacific,
where high home prices make yields
thin and leave little margin for error when
underwriting deals.
Hotels: Hard hit by pandemic travel
embargoes, the hotel sector has
become a target for investors seeking
distress deals. They have been mostly
disappointed in 2021, however, as banks
hold back on foreclosures and owners
hold on in the hope of better times ahead
as domestic travel picks up and safe
travel corridors open. Still, with debt
levels sky high, bank patience may dry
up in 2022, with the long expected waveof distress deals beginning finally to gain
traction.

Notice to Readers
Emerging Trends in Real Estate® Asia Pacific is a trends and forecast publication now in its 16th edition, and is one of the mosthighly regarded and widely read forecast reports in the real estate industry. Emerging Trends in Real Estate® Asia Pacific 2022,
undertaken jointly by PwC and the Urban Land Institute, provides an outlook on real estate investment and development trends,
real estate finance and capital markets, property sectors, metropolitan areas, and other real estate issues throughout the Asia Pacificregion.
Please note that in the text ”China” refers to “Mainland China”, and “Hong Kong” refers to “Hong Kong SAR”.
Emerging Trends in Real Estate® Asia Pacific 2022 reflects the views of individuals who completed surveys or were interviewed
as a part of the research process for this report. The views expressed herein, including all comments appearing in quotes, areobtained exclusively from these surveys and interviews and do not express the opinions of either PwC or ULI. Interviewees andsurvey participants represent a wide range of industry experts, including investors, fund managers, developers, property companies,
lenders, brokers, advisers, and consultants. ULI and PwC researchers personally interviewed 101 individuals and survey responses
were received from 233 individuals, whose company affiliations are broken down below.
Private property owner or developer
Real estate service firm (e.g., consulting, financial, legal, or property advisory)
Fund/investment manager
Homebuilder or residential developer
Institutional equity investor
Bank lender or securitised lender
Other entities

- 24%
- 27%
- 25%
-8%
-8%
-1%
-8%

Throughout the publication, the views of interviewees and/or survey respondents have been presented as direct quotations from theparticipant without attribution to any particular participant. A list of the interview participants in this year’s study who chose to be identified
appears at the end of this report, but it should be noted that all interviewees are given the option to remain anonymous regarding their
participation. In several cases, quotes contained herein were obtained from interviewees who are not listed. Readers are cautioned not toattempt to attribute any quote to a specific individual or company.
To all who helped, the Urban Land Institute and PwC extend sincere thanks for sharing valuable time and expertise. Without the involvementof these many individuals, this report would not have been possible.

vi

Emerging Trends in Real Estate® Asia Pacific 2022

Chapter 1: A Brave New World“This is a fascinating time to enter real estate because the changes over the
next 20 years will be dramatic.”
As the outline of real estate’s post-COVID
landscape begins to take shape, it isclear that in many important ways it differs
quite radically from what we knew before.
New-normal workplaces, for example, arehybrid constructs of traditional and digital;
old-school retail has been hollowed out;
warehousing has come from nowhere
to be lord of our virtual supply chains;
and our homes now function as venues
for work, entertainment, and just about
everything else.
The question now is: what happens next?
While the market’s recent excursion into
the unknown inevitably tend to revert
towards the mean, there is also a sensethat many changes are not only here tostay, but are also, in a way, hard won. For
years, real estate’s notorious resistanceto change was based on the inertia of
the status quo, but as necessity andtechnology have pushed past vested
interests, it is apparent that the mostsalient feature of the budding postpandemic world is how it has evolved
to the benefit of the masses, who now
enjoy less commuting, better working
conditions, more consumer choice, andexperiential environments wherever theygo. Indeed, it is probably fair to say thatthe long-overdue shift in the balance ofpower from the owners of real estate to its
users represents the most positive shift
for the industry in a generation or more.
In the meantime, the nuts and bolts of thereal estate world—wherein buyers invest
and owners either sell or evolve—isreaching out towards some semblance of

normality. As sentiment has reboundedin the second half of 2021, competition
for assets has increased, with investors
moving to deploy a wall of dry powderthat has grown ever higher since early
2020.
Asia Pacific transactions in the third
quarter of the year surpassed US$40
billion for the fourth consecutive quarter,
according to analysts Real Capital
Analytics (RCA)—up 12 percent on theyear and roughly the same as in thethird quarter of 2019. The strength of therebound is perhaps better measured,though, by the US$68 billion pipelineof upcoming deals, which is more thandouble what it was two years ago.

Exhibit 1-1 Asia Real Estate Transaction Volumes by Source of Capital (with Year-on-Year Percentage Change)
IndividualPortfolio

Entity$60$50Billions

$40
$30
$20
$10
0

'12

'13

'14

'15

'16

'17

'18

'19

'20

'21

'12

'13

'14

'15

'16

'17

'18

'19

'20

'21

Percentage change

50%
25%
0%
-25%
-50%

Source: Real Capital Analytics.
Note: Apartment, hotel, industrial, office, retail, and senior housing transactions included. Entity-level deals included. Development sites excluded.

Emerging Trends in Real Estate® Asia Pacific 2022 1

Chapter 1: A Brave New World

Unsurprisingly, activity has been led by
China, whose zero-tolerance approach to
pandemic containment has so far proved
effective in insulating it economically frompandemic fallout. South Korean volumes
also continue to be remarkably strong.
Investment in Australia, meanwhile, hasrebounded with a vengeance, up 145
percent year-on-year in the third quarter.
Singapore and Hong Kong, meanwhile,
are recovering more slowly, while activity
in Japan continues to stagnate.
Still, while the bounce in activity isa welcome development for funds’
investment committees, finding a home
for the growing glut of undeployed
capital is causing a fair amount of soulsearching. This is not only because
pricing—especially for core product—
remains prohibitive despite 18 monthsof elevated risk and deteriorating
fundamentals, but also because theindustry has in many ways changed
drastically in the interim, leaving investors
in limbo as they look to sift markets forvalue and risk. In doing so, feedback
from our interviews suggests that hotels
and retail are currently a hard sell (unless
distressed), office is questionable(though for some a countercyclical buy),
value-add and niche (especially for new
economy assets) are favoured, andlogistics is the sole home run.
Examples of uncertainty abound: howwill work-from-home mandates affectdemand and fitout for office space?
How should malls be reimagined as
shoppers migrate to online retailers? How
will prolonged travel embargos affecteconomic growth? What are appropriate
risk/return profiles for old and new
economy industries? Should underwriting
practices reflect environmental, social,and governance (ESG) or net-zerocarbon compliance?
In Australia, a Sydney-based developerquestioned how anti-pandemic measureswould affect local housing markets: “Thebig issue is: what’s going to happen withthe population? Whether demand petersout or whether lack of supply creates
equilibrium, I don’t know. Technicaldemand—as in births, deaths, andmarriages versus new houses—has

2

outstripped supply for the last 15 years,
with household makeup taking up theslack. But it’s unknown territory for us—
we’ve never seen such low immigrationand low population growth since WorldWar II, so we don’t know what thismeans.”

example, is clearly not as big as in theWest. The acceleration of e-commerce
and industrial [currently underway in theWest] is no surprise in Asia. Local retailwas having its struggles anyway, so no
surprise there either. So Asia is probably
less volatile in terms of changing strategy
compared to Europe and the U.S.”

Or, in the words of the global head of
one large private-equity group: “We’resitting on this convergence between the
post-pandemic world and a number ofother influences: technology, ESG, andthen the whole question about climate.
And when you put those four macro
forces together and overlay them onto ourindustry, I don’t know where this goes.”
The sense of uncertainty is amplified
in Asia Pacific markets because theirexperience of the pandemic has beenquite different from that of the West, bothin terms of policy response and also
the direction in which individual asset
classes were already evolving. According
to one fund manager: “Asia is probably
the most similar [market] in terms of
where it was, pre-pandemic, for some ofthese trend lines. The office question, for

In practical terms, and while our survey ofinvestor sentiment (see exhibit 1-2) showsa significant rebound compared with lastyear, fund managers are still getting togrips with what this means for sourcing
and underwriting deals. According toone: “Our investment strategies haven’tchanged, but it has changed questions
around risk, which we are evaluating
differently. So, for climate change, how
do you know if a building is going to befunctionally obsolete? Is it even possible
from a net-zero carbon perspective?
Possibly, but no one knows, so I think
there’s a chance it will change ourstrategies globally.”
As a result, and as this new dynamic
gradually unfolds, investors are adapting
their strategies in various ways:

Exhibit 1-2 Real Estate Firm Profitability Trends

Excellent

Good

Fair
2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: Emerging Trends in Real Estate Asia Pacific surveys.

Emerging Trends in Real Estate® Asia Pacific 2022

2016

2017

2018

2019

2020

2021

2022

Services and Operations
In the past, real estate investment
was seen as more of a buy-and-holdexercise that functioned much like along-term bond: a vehicle for yield, inother words, involving an element ofasset management. But today, with cap
rates continuing to tighten, competition
rising, and occupiers increasingly
discriminating, a more proactive
approach is needed.
As one Shanghai-based investor
observed: “Slowing growth rates froma macro perspective and widening
variance of returns is forcing owners
to derive value from operational
performance as opposed to just thebeta trade. If everything is growing at 15
percent a year, you don’t have to be very
active in your day-to-day management
to make a lot of money. But now the tide
isn’t rising as fast, so it’s forcing owners
to look to add value through operational
technology and efficiency.”
At the most basic level, this means thatlandlords are more likely to accommodate
occupiers’ particular needs by providing
relatively straightforward services
and amenities to improve the tenant
experience. These might include theprovision of turnkey space, membershippackages, better hardware, and accessto flex workspace.
According to a fund manager in Tokyo,“People that can do that are going to

be more successful than the old-stylelandlords who go: ‘Here’s your vanilla
space, now it’s all on you, when you leave
you’re going to have to return [the space]back to the original, and by the way,
give me 10 months’ deposit and yourfirstborn.’ I think that’s a differentiation
today that some groups have and others
don’t, especially compared to the typicalold-style developers, who just aren’t
going to do it.”A Singapore-based investor in themultifamily space commented: “We
continue to build personal relationships.
You can always hand tasks off to otheroperators, but nowadays we like to create
value beyond just the contraction ofcap rates, whether it’s sustainability, or
tenant surveys, or incentivising [tenants]
to stay longer. We currently have assets
targeting students in a particular area [inTokyo]—not student housing as such, but
the asset has been modified to attract
students because there’s a university
nearby. And we have other assets, forexample, that we would like to masterlease to a co-living operator. So we’retrying generally to find alternative ways to
use assets.”
At the other end of the scale, investors
are looking to package deals in ways
more akin to direct private-equity
investments in operationally intensive
enterprises—complex businesses,
therefore, that just happen to involve realestate. In this context, returns are driven
partly by rent and partly by operations,which means that both revenue streams
need to be assessed separately
to ensure that one business is not
subsidising the other.
What all this means from an operational
point of view, according to one
interviewee, is that “we are trying tosecure more strategic and complex deals
rather than compete too much in themarket; we’re trying to think a bit out of
the box, trying to buy operating platforms
instead of only buying assets, trying to
do more strategic transactions that takea lot of time and energy and are not easy
to unlock. But if it’s successful, you get
access to a very interesting situationthat is not only a property but also an
operating business.”
Of course, not all investors are able to
run with the ball beyond a certain levelof intensity—a reality that favours larger,
vertically integrated funds that can afford
to employ expertise to manage complex
assets such as data centres or coldstorage warehouses. The alternative is
to partner with outside experts, althoughthat tends to both reduce margins andincrease risk if interests are not properlyaligned. However, for funds that lackheadcount, or that spread themselvesthin across a range of potential markets
and asset classes, partnering withspecialist teams is probably the only
option.

Emerging Trends in Real Estate® Asia Pacific 2022 3

Chapter 1: A Brave New World

Value-Add Thrives
Given the extent of the changes
underway, it is clear that some buildingsthat may have performed well in thepast are likely to be inefficient in the
future. These will be added to an alreadylarge base of assets that were poorly
conceived to start with. According
to estimates by JLL, for example, 40
percent of Asia Pacific office spaceis currently in need of refurbishment,
representing some US$400 billion invalue-add potential.
Either way, with so much stock in theregion in need of repositioning, especiallyin the office and retail sectors, investors
are turning increasingly to value-add
strategies when sourcing deals. Not only
does this tap a rich vein of potential profit,
it also creates a means to bypass theendless grind of cap rate compressionthat has plagued Asia Pacific markets
for years, and that continues to rank as
one of the biggest concerns for investors
around the region (see exhibit 1-3).
Foreign funds also enjoy the additional
advantage that they tend to have a well ofexpertise to help them either reposition oroperate value-add projects, often giving
them an edge over local capital.

Value can be added in many ways, but a
few themes are noteworthy:

Exhibit 1-3 Most Problematic Issues for Real Estate Investors
2022

2021

• Technology provides more bang for the
buck. In the past, investors have looked
to aircon and lighting systems as easy
upgrades, but more recently the trend
has turned more towards acquiring
and analysing data. As one Australianinvestor commented: “The value-add isfocused around office assets becoming
data enabled, as the expectation of
corporates that have large office space
is for more real-time data [focused] on
space utilisation and things like energy
usage.”

2020

Impact of COVID-19
on property rent/values
Low yields
Vacancy rates
Lack of investableproperties

Trade friction/
geopolitical tensions• In China, cash-flow disruptions at somelarge domestic developers caused by
the government’s ongoing “common
prosperity” initiative is leading them tospin off some underperforming noncore
assets at attractive prices. This valueadd/stressed-sale situation is now thefocus of foreign funds with in-country
teams.

Competition from
Asian buyers
Asian
economic growthCompetition fromglobal buyers
Global economic
growthEnvironmental
compliance
Climate change
Impending interest
rate hikes
Cost/availabilityof finance
Currency volatility
12
Least problematic

34Source: Emerging Trends in Real Estate Asia Pacific surveys.

4

As the scale of the opportunity becomesapparent, it is attracting investors who
would normally focus on other strategies.
According to a fund manager in Tokyo:“You’re seeing more core investors comeinto the market, and they’re willing to pay
up a bit. They may be taking a similar
viewpoint to the [true] value-add investors
in thinking: ‘Now’s the chance—buy
in while the Japan Inc.–type of players
are on the sidelines.’ They’re not getting
bargains, but they’re definitely pushinginto the market, which, when we’reselling, is great—they’re bidding to a very
aggressive number.”

Emerging Trends in Real Estate® Asia Pacific 2022

5
Neutral

6

7

8
9
Most problematic• Hotels are often seen as ideal targets
for change-of-use strategies, given
both the severity of the downturn inthe sector and an expectation that theboom in teleconferencing will prevent
business travel rebounding to former
levels. This applies especially to cities
like Hong Kong, where land values
are high enough to justify the cost ofadapting or redeveloping properties.
Japan has also emerged as a target
for hotel distress. That said, however,investors active in the hotel sector wereambivalent about the prospects forhotel conversions. According to one:“It’s obviously a function of the built
form, and whether or not that can beadapted. But most hotels don’t lendthemselves necessarily to many otheruses. Whether it’s office, or student
accommodation, or multifamily, it’s noteasy to do, so I think the adaptive reusecan be pretty limited for hotels.”• As both tenants and investors set theirsights on either occupying or buying
higher-quality buildings, the appealof grade-B assets, which are lesslikely to have the modern facilities thatoccupiers are seeking, has flagged.
As prices fall, potential value-add
strategies emerge, although location
is a key consideration given thatsome secondary areas may become
unfashionable due to lack of accessto transportation or other soughtafter facilities. Nonetheless, a smart
and imaginative approach can reap
rewards.
One gauge of how important asset
repositioning has become is the extent
to which building design is evolving
to facilitate future changes of use.
According to a consultant based in HongKong: “Very often, developers havetended to second-guess what we think
the market wants, but it’s going to bemuch more flexible going forward. We
will say to architects: ‘Build an attractive
envelope, make it accessible, but as
for what happens within that space,
we’re going to decide [about] that six
months or so from the time we finish thebuilding, because we can’t anticipate at
this stage how it’s going to be used.’” Ineffect, buildings become blank slates ofgeneral-purpose space, similar to a popup model, for the market to fill in.
Also, instead of being fitted out, futurebuildings may be “kitted out” in ways thatallow spaces to be re-formed quickly,
if not spontaneously. “Beyond that,”the consultant continued, “it affects therelationship between landlord and tenant,[creating] a partnership model where thedeveloper shares in the asset value andis also investing in the business indirectly

through fitout, or even investing in someof the special features that his partner isinstalling.”

Build-to-Core Still Hot
Another way of approaching value-add
strategies is to see them not simply as
asset repositioning in the strict sense, asmuch as a way to create value throughdisintermediation. In the words of one
fund manager, “I do think that the themes
we follow, whether it’s the densification of
wealth in cities, digitisation, or deficient
supply—by which I mean not a shortageof stock, but the wrong stock in thewrong place—is a process whereby
we disintermediate at the right pricepoint. And for me, the biggest themeis the demand for yield, which is theunderpinning of build-to-core.”
The reason build-to-core strategies
continue to be successful is that vast
amounts of core capital, most of it from
elsewhere in the Asia Pacific region,
are seeking a home in markets thatremain structurally undersupplied withcore product. Competition for assets is
expected to rebound in 2022 after a yearof pandemic-related travel restrictions(see exhibit 1-4).

Exhibit 1-4 Projected Change in Economic Factors, Next Three to Five Years
WorsenNo change

Improve

2022
2021
2020

Construction
costs

Cost of finance

Yield compression

Competition from
Asian buyers
Availability ofinvestableproperties
Competition fromglobal buyers
Globaleconomic growthAsianeconomic growth
0

20

40

60

80

100

Source: Emerging Trends in Real Estate Asia Pacific surveys.

Emerging Trends in Real Estate® Asia Pacific 2022 5

Chapter 1: A Brave New WorldAs one Australian investor commented:“It’s a competitive market for assets, andon a risk-adjusted basis, development
opportunities look very good, although
we usually want to secure tenants before
we commit.”
One of many regional markets in whichbuild-to-core plays are increasing is
India, whose fast-growing real estate
investment trust (REIT) sector has
cornered much of the market for thecountry’s relatively small number ofhigh-quality income-producing assets
due to regulations that allow deferral of
capital gains tax on transfer of assets
to REITs in some situations. As a result,according to one Delhi-based consultant:“Private funds that have been elbowedout of transactions because of these tax
advantages have created a larger pool ofcapital for forward purchases structured
in the millions of square feet, with single
transactions of US$500 million, using
structured debt.”
Until recently, however, investors shiedaway from build-to-core and forward
funding strategies because COVID-19
had made both the demand and rent
prospects for new product unclear. In
addition, and for the same reasons,banks were not necessarily keen toprovide financing. While this continues
to be the case in some markets, inparticular Japan, rebounding sentimenthas seen demand for build-to-core
reemerge, including from institutional
investors who previously would haveavoided development risk. The build-torent and logistics sectors are seen as
especially suited for this strategy. One
logistics operator, for example, reported
that sovereign wealth and pension funds
that were increasing their allocations
to real estate were now looking to takedevelopment risk rather than simply buy
stabilised core assets as a means togenerate higher returns.

6

Decentralising CBDs
Disintermediation can also be pursued
through the theme of location.
Traditionally, the most valuable commercial
real estate has always been found incentral business districts (CBDs). While
this is unlikely to change, especially ascore investors continue to seek coreproduct and occupiers opt to upgrade to(now more affordable) CBD office space,in broader terms the primacy of the CBD
may not be as absolute as in the past.
There are various reasons for this.
First, as much as asset valuations insecondary locations have been victims
in 2021 of a pandemic-driven flight tosafety, over the long term they offer a
price advantage that is hard to ignore.
New buildings that are positioned to meetmarket demand can do well, therefore,
especially when they provide facilities nototherwise available on the market.
Second, as hybrid working practices
create a more decentralised workforce,
concern over employee retention isconvincing companies to provide
workplaces nearer to their homes. As one
analyst put it: “People are talking about
value add [for grade-B buildings], but the
future of offices is no longer people goingback to the CBD. So in some mature hubs
like Tokyo, Shanghai, even Hong Kong
to a certain extent, you don’t want to buy
grade-B offices in central locations, you
should buy decentralised sites that arecheaper—the hub-and-spoke model will
prevail.”One opportunistic investor described asuccessful build-to-core project involving
a 1 million-square-foot, large-floor-platebuilding in a secondary location in Seoul.
“We weren’t just building new space,” hesaid, “we were building space that we
could rent at half grade-A CBD rents andEmerging Trends in Real Estate® Asia Pacific 2022

provide an effective grade-A asset in asecondary location that worked for backoffice. We asked: ‘Who are the tenants
and where are the employees coming
from? What’s going to be attractive tothem, what subway do they come on?’ So
it wasn’t new demand, it was just being
very local on the ground and providing abetter value proposition.”
This theme will apply in particular tosuper-metropolises where workers haveto endure long commutes. In Manila,
for example, one consultant describeda global business process outsourcing(BPO) company that had given up 10,000
to 15,000 square metres of city-centre
office space in favour of alternative
working arrangements, in the form ofeither work-from-home or flex space. Her
client then used what it saved by giving
up its office space to invest in betterinternet connectivity services for its staff.
Other Philippines-based interviewees
also suggested that local BPO andmultinational tenants (MNCs) weresurrendering parts of their CBD offices,
opting instead for a more distributedmodel.
While the consensus among mostinterviewees was that the shift towards
hybrid working (and therefore a degreeof decentralisation) in the Asia Pacific
was unlikely to reverse, the extent of
this change seems unlikely to mirror theexperience in the United States, where
working from home is now more deeply
entrenched, and where an exodus isalready underway of companies inlocations such as Silicon Valley andManhattan to cities in states such as
Texas or Florida, where taxes are lower,
housing is cheaper, and the regulatoryenvironment (pandemic safety protocols,for example) are less restrictive.

In addition, the approach todecentralisation may vary dependingon geography and also employer—with
multinational corporations (MNCs)
probably more adaptable than local
companies. Tokyo’s long commutes, forexample, don’t necessarily overcome
engrained cultural norms.

Exhibit 1-5 Time Horizon for Investing
50

2022

2021

2020

2019

2018

42%
40

According to one locally based fundmanager, “I don’t see Japan going
through a major decentralisation
because, for companies, it’s very CBD
focused, and anyway people like working
in CBDs and offices—it’s part of thelifestyle.”

34%
30

21%

20

10
3%
0

1–3 years

3–5 years

5–10 years

10–plus years

The suburb of Shinagawa, with its
good transportation network and mixof business, retail, and residential
properties, was mentioned as one suchdestination.

Source: Emerging Trends in Real Estate Asia Pacific surveys.

Exhibit 1-6 Investors’ Targeted Returns between Now and the End of 2022

2022

2021

2020

35%

35
31%
30
25

20%

20

At the same time, however, “you’recertainly going to see companies,
particularly nonfinancial outfits,decentralise to a certain extent and try
to put offices close to where people live
to make the commute easier. And part ofthat is trying to get talent, because there’s
still a very tight labour market.”

15
10

8%

6%

Hong Kong, meanwhile, may also
prove resistant to distributed working
practices, given its compact nature anda skilled, service-oriented workforce.
Still, according to one locally based
consultant, the very concept of a single
CBD has become dated. In the long term,“I think we’re looking at business clusters
driven largely by public transport. These
will contain all conceivable uses: office
and residential, and possibly hospitality
and retail as well. But it will be driven
more by what works from the employee
point of view, and what works in termsof the environment—very different
considerations to those we’ve always hadin mind.”

5
0

0%–5%

5%–10%

10%–15%15%–20%20%+

Source: Emerging Trends in Real Estate Asia Pacific surveys.

Emerging Trends in Real Estate® Asia Pacific 2022 7

Chapter 1: A Brave New World

Australia: Key Themes
Through lockdowns, closed borders, andpublic protests, Australia’s commercial
property markets have shown surprising
resilience in 2021, with investment
volumes rebounding sharply in thefirst three quarters of the year to some
US$24.8 billion—up 106 percent on theyear and 21 percent higher than the 2015
to 2019 average. Predictably, competition
for assets is high. According to a fundmanager at one domestic fund: “CBDis trading at really high prices, purely
due to the weight of capital, low interest
rates, and prices in Australia comparedto other CBD markets—to an extent,these [factors] are masking fundamental
drivers.”
Cap rates for prime properties have either
held firm or continued to compress tosometimes “unheard-of levels” across the
spectrum of asset classes. Given this,investors tend to favour stability as muchas yield and are therefore seeking (andwilling to pay for) long weighted averagelease expiries (WALES).
Even with incoming travel for nonresidents/citizens at a standstill, activity
by global capital is higher than ever.
According to one Sydney-based investor:“If anything, there’s been an increase in[foreign] capital over the last two years.
In part, that’s down to stable governmentand currency, but it’s also because,
if you look at the cap rates assets are
trading at now, local equity can’t afford
to participate—their cost of capital is
too high. So even for the most active
local investors, nearly everything they
are buying is either through 50 percentof their own equity or, more importantly,
through wholesale funds bringing in[sovereign wealth funds]. They then get
the fund management fee with a minor
equity stake.”
As in other markets, the logistics sector
has been the standout, led by a single

8

massive deal in the second quarter.
Transaction volumes in the logistics
sector during the first three quartersof the year were more than double thefive-year average, according to RCA. So
many investors lining up to buy Australianlogistics assets (as much as A$45 billion
worth of capital in mid-2021, according
to JLL) reflects not just a hunger to placecore capital in what is arguably the
Asia Pacific’s most developed market,
but also a structural shortfall of local
warehousing capacity in a market where
e-commerce—representing some 13
percent of total consumer spending—is still relatively underdeveloped by
global standards. According to CBRE,for example, New South Wales needs
to boost warehouse supply by some
35 percent to meet demand currently
generated by e-commerce sales.
As funds reweight portfolios by reducing
retail and office assets, the logistics
sector has continued to benefit, withyields sinking to an average 4.8 percent
in mid-2021, according to RCA, and
sub–4 percent for the most sought-after
facilities. At these levels, logistics facilities
are trading on a par with prime offices,which have long been the preferred
play of foreign investors. “I struggle with[Australian] logistics at the moment,”
said one investor. “Car rates are so tightand tenants have quite high bargaining
power. So, as soon as yields tighten,
rents also decrease, which is why rents
in logistics have not increased that muchover the last 10 years.” For this reason,
most interviewees doubted that yields
would compress much further.
While grade-A office values remain“priced to perfection,” net effective rents
in Sydney and Melbourne are down byalmost 9 percent year-on-year in the third
quarter, according to JLL, with vacancies
in each pushing 15 percent. Subleaseavailability also is high, especially in
Melbourne.

Emerging Trends in Real Estate® Asia Pacific 2022

Older buildings in less popular locales
have suffered more, and a widening of
spreads between rents of city-centre
grade-A and grade-B buildings isproviding scope for value-add investors inbuildings where rents are down and havelittle prospect of early recovery.
At the same time, investor interestin newer, good-quality CBD offices
continues to be strong, driven as in
the past by foreign capital. Doubts
remain, however, whether historical CBD
occupancy rates may be cannibalised
by long-term adoption of hybrid working
practices. Office utilisation in major east
coast cities fell below 10 percent during
the September lockdowns—lower thanin other Asia Pacific markets and hinting
at a future more aligned with Westernmodels that seem (for now, at least) lesscommitted to a return to office-centric
practices.
The large corporations that are mainstay
tenants for large buildings have yet tomake their decisions about their future
office strategies, but for midsizedcompanies, as one developer noted,“CBD is not reflective of where some ofthe opportunities are—decentralisation
has become a big theme in Australia forour office markets, and medium-sized
firms are now looking for new workplaces,
whether because they need less room
because of remote working, or they’reinvesting in better spaces, or looking
in different areas that may be closer tohome.”
Although COVID-19 has only compoundedlongstanding dysfunctionality in someparts of Australia’s retail sector, 2021 retailsales have been stronger than expected,
despite the expiration of the government
Jobkeeper programme. Investment
volume was also strong. For the mostpart, this is due to a focus on subregional
shopping centres, convenience stores,Monthly Growth Rate in Australian
Dwelling Values, March–October 2021

Australian Large-Format Retail: Year-on-Year Capital Value Growth,
3Q 2021
35%
30%

33%

31%

30%

2.76%
2.21%
1.83%

1.95%
1.64% 1.53% 1.51% 1.49%

Growth (%)

25%

23%

20%
15%

12%

5%
0%
Mar Apr May
21 21
21

Jun
21

Jul
21

Aug
21

Sep
21

Oct
21

Source: CoreLogic.

and large-format retail, all of which havebenefitted from lockdowns and work-fromhome polices and are priced attractively
relative to more popular office andindustrial assets. There continue to be
wide disparities in performance between
different types of retail assets, however.
One analyst predicted “carnage” inthe poorly performing non-high-end
multilevel shopping centre space, adding:“CBD retail might transform into a twotier market, with high street retail still indemand but multilevel shopping-centre
retail within CBDs more challenged,”
especially at above ground-floor level.
This group was in decline for years andhas now also borne the brunt of pandemic
lockdown restrictions, with foot traffic
for Sydney CBD locations dropping 86
percent month-on-month in September
2021, according to CBRE. Valuations
have now been rerated to a point where
yields of around 6 percent are attractive
for office and industrial assets (i.e., forlast-mile fulfilment purposes). In addition,
large plots occupied by some suburban
retail centres have become candidates for

9%

10%
3%

Greater
AdelaideGreater
BrisbaneGreaterCanberra

Greater
Greater
Melbourne PerthGreater
SydneyAustralia

Source: CBRE Research, 3Q 2021.

speculative repositioning as mixed-use
facilities.
Transactions are expected to remainstrong given the number of such
multilevel centres in Australian cities,
together with an ongoing trend forinvestment funds looking to divest.
Foreign funds (both institutional andprivate equity) are lining up to take theother side of the trade. This has createdthe odd situation of previously tight cap
rates among city-centre assets softening
just as the higher-yielding assets inregional locations tighten.
Finally, the market for residential
properties has been on fire in the second
half of 2021, as home prices rose steeply
despite a hard stop in population growth
due to lack of immigration. Inflation is
one catalyst, combined with persistently
low interest rates and a shortfall insales listings for the most sought-aftermarkets, according to one locally
based developer. (For discussion of
the multifamily sector in Australia, seechapter 3.)

Despite current market strength, future
prospects for the sector will ultimately
hinge on a rebound in immigration. “We
can dream about what we can do” hesaid, “but the reality is that since its
founding, Australia has been dependent
on two things. One is immigration for
population growth and the other isinbound capital—take those two things
away and we have nothing to offer,certainly as a growth story.”
Although bank finance remains readily
available, construction activity has
dropped, pointing towards future home
supply shortages. According to thedeveloper: “It’s a difficult market to finddevelopment sites because, in New
South Wales especially, the planning
process has slowed significantly throughthe government, which means that thepipeline for new developments looking
ahead a few years is limited, on topof which there’s increased demand.
Which means that if someone has aplanning-approved development site, thecompetition has been extremely tough.”

Emerging Trends in Real Estate® Asia Pacific 2022 9

Chapter 1: A Brave New WorldNew Economy Drives Demand
A further catalyst for the migration of capitalaway from CBDs is the overarching shift
in the economic centre of gravity in favourof “new economy” industries, which arefeaturing increasingly today as part ofthematically driven investment strategies.
In the words of a fund manager based in
Hong Kong: “Banks aren’t growing, asset
managers aren’t growing, traditional
businesses aren’t growing—today, it’s
about firms that are into digitisation. Thatmay be something as direct as a techcompany, but I mean it more broadly.
Digitisation could include life scienceor education, for example. So you needto think about which markets newgeneration tenants are migrating to, andwhat products they’re demanding—and
that’s generally not CBD.”
Depending on the market, “not CBD”
can mean different things. In China,
there is little incentive for companies
to create a more distributed workforce
when the impact of the pandemic has
been relatively minor. However, thegovernment’s long-term plan to grow its
technology sector has created a large
number of new-economy companies
with little inclination to be based in city
centres. As a result, investment in office
and research and development (R&D)
space in Chinese technology parks
reached a record high of US$2.5 billion
in the first quarter of 2021. Collectively,
these companies are expected to takeup more than 5.5 million square metresof space (i.e., more than 20 percent of
total office takeup) by 2025, according
to Colliers. Demand from technology
companies is also growing in markets
throughout the Asia Pacific.
To a great extent, this transition to nonCBD workspaces is happening under
the radar. As an example, respondents
in our survey indicated they planned tobe less active in the business park spaceover the coming year than they were ineither 2021 or 2020. As a Hong Kong–based analyst commented about themarket in China: “People are not talking
about business parks so much because
they are decentralised. In the old days,

new REIT pilots now include businessparks [as an eligible asset class].” RCA
reported almost US$4 billion in deals of
office properties within Chinese businessparks in Beijing and Shanghai during theyear to October 2021.

buildings were low quality, but now
parks in upper-tier cities are increasingly
mature, rents are cheaper and they are
where life science and tech companies
are now locating. Beyond that, people
are forgetting that the government’s

Exhibit 1-7 Niche Sectors in Which Investors Are Active or Plan to
Be Active in 2022
2022

2021

2020

Data centres
Life sciences
Flexible/
serviced offices
Senior housing
Business parks
Affordable
housing
Self-storage
Student housing
Resorts
0%

10%

20%

30%

50%

60%

70%

8

9
Excellent

Exhibit 1-8 Prospects for Niche Property Types in 2022
2022

2021

2020

Data centres
Life sciences
Senior housing
Self-storage
Affordable
housing
Businessparks
Shared/serviced offices
Student
housing
Resorts1
Abysmal2

3

4

Source: Emerging Trends in Real Estate Asia Pacific surveys.

10

40%

Source: Emerging Trends in Real Estate Asia Pacific surveys.

Emerging Trends in Real Estate® Asia Pacific 2022

5
Fair

6

7

In Hong Kong, new-economy
companies—including those involvedin telecommunications, e-commerce,
biotech, new energy, and pharmaceuticalindustries—have reportedly set up
camp in the city’s large stock of former
industrial and warehouse space that isavailable for conversion to commercial
use under a government incentive policy.
Around 50 percent of available space has
now been occupied by these companies,
according to press reports.
India is another market where the neweconomy theme has taken root, with life
sciences expected to be a major sourceof growth, in particular for the offshoringof manufacturing for research carriedout by major pharmaceutical companies
elsewhere in the world.
According to an opportunistic fundmanager active in the space, the Indian
life sciences industry is similarly placed
to the pre-boom days of the Indian tech
office space 15 years ago. “It’s not life
science in the traditional U.S. context,
because it’s less venture [capital]; it’sa risk-adjusted opportunity, figuring out
with the big pharma companies how to
reduce costs,” he said. “The productitself is somewhere between tech officeand logistics/industrial. It isn’t the hugely
expensive life science space you’d find in
the U.S.. It’s more around waste disposal,
heavier floor loading, more power, better
air handling, more infrastructure to handlea heavier level of MEP [mechanical,
electrical, and plumbing] that will go into
these facilities.”

Cash Flow Trumps Yield
While yield has always been a primary focus for investors, the pandemic has
led to a shift in priorities. Funds will no doubt continue to engineer higher
revenues via value-add or other approaches, but an acceptance that low
cap rates are probably a long-term reality, together with an understandingthat (sometimes negative) yields on sovereign bonds now make them
uncompetitive with real estate, has changed the emphasis.
In particular, higher vacancy rates and tenant churn mean landlords are
putting increasing value on retaining their existing tenant base or recruiting
new tenants (such as government entities) more likely to have staying power,
even at a discounted rent.
According to an office landlord in Tokyo: “We’ve taken a bit of speed off the
fastball in that, in the past, if we had a tenant far below market [rent] and theywouldn’t pay up, we’d take the space back and lease it up to market, with ayear or two of transition to get it up to full face rent. But we don’t want to dothat now because tenants aren’t making very dramatic decisions, so once you
have a relatively large vacancy in your building, it becomes kind of hard to fill
it up.”
This is one reason why long weighted average lease expiries (WALES)
associated with the logistics sector have become so prized. The same applies
also to multifamily assets. As one institutional fund manager said: “When
you’re living in a world of zero percent interest rates, a resilient inflation-linked
multifamily asset presents a pretty compelling investment opportunity for a
global investor, so that obviously means we have a long runway of investment
allocation that will certainly play out into the space over time.”

Specific new-economy submarkets
identified in interviews included
Zhangjiang in Shanghai, Shangdi in
Beijing, and Singapore’s City Hall. Upand-coming locations include Sydney’s
CBD South and Shenzhen’s Qianhai
New District, which one interviewee
suggested may become a new venue for
the Chinese life science industry currently
centred around Shanghai.

Emerging Trends in Real Estate® Asia Pacific 2022 11

Chapter 1: A Brave New World

China: Key Themes
China’s zero-tolerance approach to
COVID containment has successfully
insulated its economy from the brunt ofpandemic-related shocks, with grossdomestic product (GDP) growth reachinga respectable 4.9 percent year-on-year
in the third quarter of 2021, according
to investment bank Standard Chartered.
Real estate investment has also been
resilient, rising 15 percent year-on-year in
the first three quarters of 2021 to US$35
billion, according to RCA. Driven mainly
by domestic investment demand, thismakes China easily the strongest market
in the Asia Pacific, with economic activity
well ahead of pre-pandemic levels in theyears 2015 and 2019.
In terms of asset classes, the domestic
consumption narrative has become apopular theme. A resilient economy,
combined with lack of foreign travel
opportunities, has therefore seen retailassets trade strongly. Investors arealso pursuing the usual global seculartrends, in particular logistics and higheryielding new-economy subsectors suchas cold storage, data centres, and life
sciences. The build-to-rent residential
sector has also gained traction, backed(among other things) by government
policy initiatives for affordable housing
opportunities (see more in chapter 3).
Office rents in tier-one cities havedeclined significantly since the start ofthe pandemic (less so in 2021), although
this reflects excess supply more thanweak demand. Capital values have also
suffered, with Beijing and Shanghai being
the only gateway cities in the Asia Pacificwhere prices have fallen significantly in
2021. This is partly because of weaker
demand from foreign buyers who tend
to focus on this space, though it also
reflects a shift of focus by domestic
institutional investors to suburban
business parks.

12

Change in Asia Pacific Gateway City Office Pricing
2020

YTD 3Q 2021
Melbourne
Seoul
SydneySingapore
Tokyo
Hong Kong
BeijingShanghai
-15%

-10%

-5%

0%

5%

10%

15%

Source: Real Capital Analytics.

However, with Chinese domestic capitalfor the most part still restricted frominvesting offshore and the residential
sector now losing its appeal, local
institutions are focusing increasingly
on domestic offices. Their lower
returns targets and cost of capitalcreate stiff competition for assets, andforeign investors are therefore turning
increasingly to value-add strategies,
leveraging their operational expertise to
upgrade older or mispositioned assetsthat can be resold (often to those same
institutions) as core properties.
June 2021 saw the launch of adomestic Chinese REIT (C-REIT) sector,
comprising an initial nine funds with a
combined market cap of some US$5
billion, according to JLL. Although theownership structure, tax breaks, andlevels of allowed leverage are lessthan ideal, they do create an additional
institutional exit channel for foreign funds,

Emerging Trends in Real Estate® Asia Pacific 2022

especially those looking to deploy capitalat scale by assembling portfolios. At
this point, C-REITs are aimed mainly at
the infrastructure sector, although bothlogistics and industrial properties also
qualify for inclusion. As a result, businessparks have become a hot sector,
especially those focusing on industries
favoured by government policy, such as
innovation and life sciences.
Despite these positive fundamentals,
however, China’s real estate industry was
blindsided in the second half of 2021
by the introduction of the government’s“common prosperity” initiative. Consistingof a broad policy reset with crosseconomy effect, sectors targeted varied
from technology to gaming to education,with the intent of addressing growing
social imbalances and income inequality.
As it affects real estate, the government isfocused mainly on the residential sector.

The “Three Red Lines” policy, introducedin August 2020, had already taken aim
at high levels of developer borrowing. It
was followed in 2021 by a wave of newtightening measures ranging from supplyand-demand issues to leverage, funding,and price controls. Property-sector
crackdowns are hardly new in China,
but the scope of the current episode has
been unprecedented.
Although not aimed specifically atcommercial real estate, the impact of thecommon prosperity drive has spread
rapidly across the industry. As financing
options quickly dried up, bank lending
to developers fell 37 percent in the year
to September 2021, according to the
China Real Estate Information Corp,
while debt sourced from investment andtrust funds, as well as both onshore andoffshore bond markets, also fell sharply.
Meanwhile, year-on-year property
sales in the first nine months of 2021
dropped 14 percent (and by a startling
36 percent for home sales), further
undermining developer cash flows.
Pressure only grew when a number ofdomestic developers—including one of
the country’s biggest—were struck by aliquidity crisis during the third quarter.
Some investors, especially foreign
funds, have reacted to the shifting policy
landscape by stepping away from themarket. For some domestic players,
the choice is often compelled by a lackof financing, but uncertainty over the
direction of government strategy, together
with its potentially negative economic
repercussions, have also played a part.
According to one foreign investor:“There’s a lot of ‘risk-off China’ [mentality]
in the U.S. right now. The investment
view from those already in-country andwho understand it well is still positive,
but they’re saying: ‘How do I, with mystakeholder base and all the stuff we’reseeing, bring Chinese projects to myinvestment committee right now?’ So
there’s going to be some pullback,though it will probably be temporary.”
Another issue of concern to foreign funds,
according to a different interviewee,
involves how current or impending policychanges may affect the ability to exit theirinvestments. This applies especially toplatform deals, at least partly as a resultof the demise of one recent high-profiletransaction involving a prominent global
private-equity fund.
That said, doomsday scenarios being
mooted by some Western analysts
are probably overstated—in particularparallels drawn to the origins of the global
financial crisis in 2008. As a number ofChina-facing investors pointed out:
• China’s banking system remains wellcapitalised, with development loans
totalling just 6.9 percent of total loanbalances, according to Morgan Stanley.
• The government retains control of thelevers of liquidity (ie, via the banking
system), which it can reapply at any
time.
• The extent of outstanding real estatedebt is unlikely to be overwhelming.
Although total debt levels across the
Chinese economy are hard to pin
down, most investment banks consider
aggregate leverage in the real estate
sector to be manageable. According
to Morgan Stanley, total borrowing
by domestic developers amounts toaround Rmb18.4 trillion, or roughly thesame as annual property sales—anamount unlikely to have systemic
impact. Leverage in the housing
market, meanwhile, stands at a low 40
to 50 percent, according to Goldman
Sachs. And while risk of contagion by
way of cross guarantees or off-balance

sheet lending remains, China hashistorically fostered an approach tointermediating distress via absorption ofdebt by state-backed entities that has
avoided the type of chaotic unravelingsometimes seen in Western markets.
Going forward, interviewees predictedthat property curbs would remain in place
until at least the end of 2021. Thereafter,
while the pace of new construction may
slow, investment activity is expected
to rebound quickly, if only because theongoing squeeze opens as many doors
as it closes.
For one, officials have responded to thecrisis by lowering prices and relaxing
preconditions at local land auctions. In
addition, the stress induced in the system
has created scope to capitalise on
market dislocations.
As one Shanghai-based fund manager
said: “The deleveraging campaign has
put strains on the balance sheets ofsome developers, meaning in reality thelast opportunity for them to raise capital
is to sell noncore assets. So it’s driving
a whole host of groups to think about
the opportunity costs of some of thesecommercial assets that they’re not doinga good job of managing and dispose ofthem, and we’re seeing a lot more flow inthat regard.”
As a result, foreign investors are getting
better access to closely-held but often
underperforming properties of the typethat rarely come to market, creating
potential to upgrade and reposition themas core properties.

Emerging Trends in Real Estate® Asia Pacific 2022 13

Chapter 1: A Brave New World

China’s Mega-City Clusters
Traditionally, commercial real estate
investment in China has focusedon its tier-one cities, which haveoffered the optimal mix of demand
growth and wealth to absorb an
ongoing stream of high-value
development. More recently,
however, the focus has shifted—
partly due to government policy
initiatives—towards creation oflarger, megapolis-type areas, often
anchored by one or more tier-one
cities. The Yangtze River Delta was
the first of these to evolve in China,
as Shanghai-based businesses
grew organically into neighbouring
areas, catalysed by development ofhigh-speed transport networks.
More recently, other city clusters
have also sprung up, in particulararound the Bohai Bay area in thenorth (otherwise known as the
Jing-Jin-Ji) and the Greater Bay
Area (GBA) in the south, the latterencompassing a total of nine cities
and two special administrative
regions, with four at the core:Hong Kong, Guangzhou, Shenzhen,
and Macau. The idea is to create a“productivity cluster” featuring hubs
specialising in specific disciplines suchas financial services, logistics, andtechnology manufacturing. Each hub
helps spur the evolution of the cluster
by way of a virtuous feedback loop of
mutual economic development.
Lack of clarity as to how currently
evolving government policies may
reshape the domestic real estateindustry has led many developers to
refocus strategies in favour of asset
classes and geographies they know willcontinue to enjoy government support.
This means less investment in third- andfourth-tier cities, for example, and morein China’s evolving city clusters.
It is probably fair to say that the GBA is
enjoying particular attention at this time
because, despite its nomination by thegovernment to National Strategy status,
it remains at a relatively early stage ofdevelopment as a cluster. This createssome risk, according to one interviewee,

Demographics Drive Niche
Plays
Over the last several years, investors
who have been crowded out of traditional
asset classes by funds with lessdemanding performance expectations
have turned increasingly to niche assets
to meet their targets. Interestingly,
although the generally higher yields
offered by niche asset classes continue
to be a factor, investors today arefocused more on demographic demandand diversification as incentives to invest
in assets of this type (see exhibit 1-9).

that government policy may yetchange, but also increases available
opportunities for early movers.
Another catalyst, according to adifferent foreign fund manager, isthe fact that the central government
has put increasing emphasis on
Hong Kong’s integration into theMainland Chinese economy, thereby
incentivising it to spare no effort inensuring the GBA’s success.
A recent poll conducted by investmentbank Standard Chartered reflecteda consensus among respondents
that the GBA had established a clear
lead over other economic zones in
China in terms of pace of economic
reform, market openness, and ease of
doing business. Exactly which partsof the cluster will enjoy the greatest
success is open to debate, althougha representative of one Chinese
developer identified Shenzhen andZhuhai as cities that had become “keydevelopment targets in the country.”

Exhibit 1-9 Reasons for Investing in Niche Sectors (% of Respondents)
2022

2021

2020

Demographic
demand drivers
Diversification
Higher yields
Will benefit from or
be more resilient to
the impact of COVID-19
Stableincome return
Less competition
from other investors
0

5

10

Source: Emerging Trends in Real Estate Asia Pacific surveys.

14

Emerging Trends in Real Estate® Asia Pacific 2022

15

20

25

30

In today’s volatile and unpredictableenvironment, unconventional strategies
probably offer more opportunity thanever, although risk is equally elevated.
Some of the options mentioned ininterviews include the following:• Defensive asset classes targetinga domestic or local audience are
obvious opportunities in a world ofseemingly endless lockdowns andtravel embargoes. That includes local
nondiscretionary retailing, which has
been actively targeted by investors
across the region.
• For the same reasons, retirement
living and care homes were also
popular themes, although—with the
exception of Australia and Japan—a
viable operating model has yet to
emerge in the asset class, despite achronic shortage of supply. Investors
are also concerned about residents’potential exposure to COVID-19
outbreaks. Investment volumes in the
Asia Pacific have rebounded strongly
in 2021, registering US$779 million
in the first half of the year, compared
to US$689 million for the whole of2020, according to RCA. In Australia,
several interviewees identified facilities
for retiring baby boomers as a viable
market niche. Many boomers havelarge discretionary spending capacities

and are now looking for space in highquality gated communities with a focus
on health and wellness.
• The pain in the retail sector has
been felt most deeply in the upper
floors of multilevel retail centres,
and as rents continue to fall, there isopportunity to repurpose these spaces
in a variety of ways. Suggested uses
ranged from studios, workspaces,
libraries, schools, clinics, flex
workspaces, last-mile logistics, andeven retirement facilities, as describedabove. One interviewee suggested
a model where a master landlord
controls the whole floor and manages
the 20 or 30 revolving tenants on apartnership basis, sharing costs andprofits involved in creating different
experiences on that floor.
• Data centres and cold storage
were also popular themes, especiallythe former given generally high returns.
Both are operationally intensive,
however, and have various complexities
that make them a minefield for theunwary.
• With lockdowns and high infection
rates providing little reason to
linger in urban areas, demand forhomes in suburban or out-of-town
neighbourhoods has shot up. While

the motivation for this migration awayfrom densely populated city coresis clear enough, the bigger questionis whether the phenomenon has
staying power. Opinions on this vary,
but for now the trend plays into thedecentralisation narrative set out above.
In Australia, attention has focused on
detached houses in generally pricey
beachside suburbs near Sydney
and Melbourne. Home values hadrisen more than 30 percent year-onyear in September 2021, according
to CoreLogic. The same applies toTokyo, where occupancy of rental
housing has fallen as residents leave forneighbouring areas such as Yokohama,as well as towns in Saitama and Chiba
prefectures. In India, new development
has shifted away from high-rises andcondos to “plotted developments”—
four-floor units situated on 100- to
200-square-metre plots within gatedcommunities. The change has been
driven not only by health considerations
but also by a desire for freeholdproperties that provide more spacefor work-from-home purposes. Prices
for plotted developments in northern
Indian cities have risen 50 to 60 percent
over the last year, according to one
locally based interviewee. Finally,
the Philippines is seeing a similar
phenomenon in the form of “horizontal
gated communities.”

Emerging Trends in Real Estate® Asia Pacific 2022 15

Chapter 1: A Brave New World

Distress: Still Waiting

seen steep declines in capital values(apart from residential properties). But
the city’s longstanding reputation for highrents gives it a unique niche, and local
markets were anyway already absorbing
the impact of a prolonged period ofsocial unrest immediately before thepandemic appeared. Besides, evenas values have declined, the extent of
distress in Hong Kong has been limited.
Tourist districts in Kowloon may haveregistered many distressed strata-title
sales, but investment-grade assets havebeen mostly unscathed—a fact thatspeaks to both the staying power andlack of leverage of local owners.

Given the extent of the downturn in the
global economy, the stability of capitalvalues throughout the Asia Pacific has
been remarkable. In last year’s report,interviewees expressed widespreadconviction that a wave of distressed
assets would hit the market in 2021. So
far, though, despite often-steep declines
in rents (and, apart from Singapore, few
expectations of a rebound (see exhibit
1-11)), those fears have not been met,with property values for the most part
remaining firm.
Of course, not all markets have avoided
the drop. Hong Kong, for instance, has

Exhibit 1-10 Office Rental and Capital Value Changes,
Year-on-Year Percentage, 2Q 2021
Rental values

Capital values
3.5

Seoul

14.1
2.2

Mumbai

4.3-1.1

Manila-3-3

Shanghai-4.5-4.5

Jakarta-6.2

Singapore-9.6

BeijingHong Kong-11.3

Bangkok
-17.8

2.2

-6.7

-10.1
-11.2
-10.8

Tokyo

1.1

-7.5

Melbourne

Sydney

-7.3
-5.9
-2.5

Source: JLL (Real Estate Intelligence Service), 2Q 2021.

16

2.2

Emerging Trends in Real Estate® Asia Pacific 2022

In terms of asset classes, the retail andhotel sectors are the most exposed to
distress, as well as a few of the nicheareas. In particular, with some 738,000
degree-level foreign students enrolled
in 2019 (more than 200,000 hailing from
China), travel restrictions have had adevastating impact on Australia’s student
housing market. According to one fundmanager active in the space, “Student
accommodation owners are in real
strife, and I don’t see how that’s going tochange for the foreseeable future. So, if
you could buy student accommodationin Australia at a deep discount—and
I can’t help but think there should besome distress there—that would be an
asset class that’s potentially suitable forconversion. Unfortunately, though, mostof the owners are backed by some of the
big sovereigns.”
Exhibit 1-11 Cities Most Likely
to See Office Rental Growth in2021
Decrease

Increase

1 Singapore

5.34

2 Sydney

4.77

3 Tokyo

4.66

4 Shenzhen

4.61

5 Melbourne

4.58

6 Shanghai

4.58

7 Guangzhou

4.40

8 Osaka

4.39

9 Beijing

4.30

10 Seoul

4.22

11 Hong Kong

4.22

12 Ho Chi Minh City

4.20

13 China—second-tier cities

3.88

14 Taipei

3.72

15 New Delhi

3.52

16 Mumbai

3.50

17 Jakarta

3.47

18 Auckland

3.37

19 Bangkok

3.26

20 Manila

3.24

21 Bangalore

3.19

22 Kuala Lumpur

3.14

Source: Emerging Trends in Real Estate Asia Pacific2022 survey.
Note: Data scored on a nine-point scale.

At the same time, student-housing
markets in Japan, Singapore, and
New Zealand have been less affected
because they are aligned closely withdomestic market demand. Conceivably,
they could benefit from the slack createdby the closure of Australian facilities, as
Chinese students choose other options.
At the other end of the scale, some Asia
Pacific markets have seen commercial
property rentals and values increase,
despite severe COVID-19 outbreaks. Thisoccurred in India after an unanticipatedboom in global demand for techoutsourcing arrived just as the end oftax breaks for the country’s special
economic zones was driving an exodusof tenants in the direction of crowded ITparks. In Seoul, buyers have flocked to
office assets as a result of changes in thedomestic tax regime, together with an
influx of capital from the country’s cashrich institutional funds, which are having
trouble buying assets internationally due
to global pandemic control measures.
Meanwhile, expectations for distressgoing forward seem to have faded, withjust 10 percent of this year’s survey
respondents expecting “significantly
higher” returns from distress strategies,
compared with 17.7 percent surveyed
last year (and just 26.3 percent expecting“somewhat higher” returns, comparedwith 32.3 percent last year) (see exhibit
1-12).
The unexpected absence of stresshas left some investors scratching
their heads. One Australia-based
fund manager active in the hospitality
sector commented: “It surprises methat valuations haven’t dipped quite
sharply. Certainly, in the big urban city
markets, room rates are a function of
supply-constrained days in terms ofoccupancies—so you really need thosefull-house days to push rates, and that inturn requires the various demand drivers
to be firing on all cylinders, whether
that’s the MICE [meetings, incentives,
conference, and exhibition], leisure, or
corporate markets. But that tension just
is not coming around anytime soon—it
still remains to be seen how the big
conventions are going to play out, but I

Exhibit 1-12 Change in Targeted Returns Compared with 2021
Significantly higher

Significantly lower

Somewhat higher

Significantly higher

Same

60%
50%
40%
30%
20%
10%
0%

Opportunistic

Distress

Value-add

Core-plus

Core

Source: Emerging Trends in Real Estate Asia Pacific 2022 survey.

think there’s a fair runway before we see
those returning to full strength.”
Various factors have been suggested
as a cause. First, as the Australian fundmanager continued, “It’s just weightof capital—investors are taking a viewthat assets which otherwise wouldn’t be
up for sale are now available—albeit
they’re not necessarily getting them atany discount—and then they are also
assuming it’s a case of when, not if, for arecovery, and probably with some pentup demand.”
Second, banks remain unwilling to pull
the plug on underwater loans. Fundmanagers in both Tokyo and Australia
suggested that local banks werecomplying with an unwritten government
mandate to provide forbearance to major
borrowers. “There’s definitely a public
good in keeping the banks liquid, andalso the banks keeping the service sector
liquid,” one manager in Tokyo said. “Also,
the better properties are generally ownedby the bigger companies, so even though
they probably should sell, I don’t thinkanyone’s forcing them to do that.”
Australia is regarded as having asomewhat less accommodative banking
sector, so some see that market asa likely canary in the coal mine. But
although a pipeline of potential distressed
sellers has emerged in Australia,
according to one analyst, owners arestill unwilling to provide the 30 percent
discount that buyers are asking for.
Australian banks have yet to blink, andby now many investors are losing faith
they will. As one fund manager observed:“We’re more than a year-and-a-half into
this now and I think people have justpivoted, adapted, and learned how to livewith this stuff. So in most cases I don’t
think we’re going to see distress—we’recertainly not banking on that in terms of
our strategies.”
Potential distress is also evident in othermarkets, though not necessarily linked tothe pandemic. China, for one, has seena surge in divestment of noncore assets
by major developers in response to a
recent government policy crackdown(see China: Key Themes on page 12). In
India, another regulatory crackdown, in
combination with the devastating waveof COVID-19 infections in mid-2021, hasbeen a “trial by fire” for local residential
developers, bringing many firms totheir knees. As a result, the bigger
international distress players are now
active in Indian tier-1 cities.

Emerging Trends in Real Estate® Asia Pacific 2022 17

Chapter 1: A Brave New WorldThe Green Premium
Perhaps the most powerful trend to haveemerged in the world of commercial
real estate over the last decade has
been the growing mandate for green
buildings, which has now leapfroggedfrom obscurity to claim top billing on
investor and landlord agendas. Apartfrom Australia, the Asia Pacific region
remains behind the West in this area,
but is beginning to catch up. And withclimate change continuing to dominate
the headlines, the pressure to go green
will only increase over time.
The shift towards energy efficiency inthe region began in Australia as long as
15 years ago, driven first by regulation,then by tenants, and finally by domestic
investors, who handed them a 25-basispoint cap rate differential on the basisthat higher environmental performance
would lead to better building longevity.
Today, the main catalyst for change
continues to come from the private sector
rather than regulation. Policies embraced
originally by European institutional
investors required that assets theypurchased comply with certain baseline
standards focused mainly on energy
efficiency. As other major global investors
were in turn pressured by their limited
partners [LPs] to adopt similar mandates,building owners came under increasingpressure to conform.
More recently, though, the push hascome from occupiers. As one HongKong–based private-equity investor
observed: “Funds are paying more forthe green mandate because they cangenerate more demand from tenants, andtherefore higher rentals. That’s because
big corporate tenants, particularly inmarkets like Australia, are now adopting
policies that they won’t take space inbuildings below a certain rating.” Owners
are therefore motivated to upgrade sothey can lease out space at higher rents.
This trend also creates an opportunity
for value-add funds to buy well-locatednoncompliant buildings, upgrade themfor ESG purposes, and then either letthem to better tenants or sell them to

18

Exhibit 1-13 Company/Organisation Real Estate Strategies with
Net-Zero Carbon Emissions Target (by % of Respondents)		

Yes

31%

No, but planning to adopt by 2025

31%

No
0

38%
5

10

15

20

25

30

35

40

Source: Emerging Trends in Real Estate Asia Pacific 2022 survey.

Exhibit 1-14 Role of ESG Factors in Investment Decisions
2022

2021
37%

Mandatory
consideration
Significant
but discretionary
consideration

35%

23%

Minor
consideration
6%

Not a
consideration
0

10

20

30

40

50

Source: Emerging Trends in Real Estate Asia Pacific surveys.

European (or, these days, global) funds
looking for future-proofed buildings.
While this so-called green premium isvery real, however, putting a dollar value
on it is difficult. According to a fundmanager at one large private-equity
firm: “If we do a WELL rating on anasset, where that really lands is in the
productivity of the people who sit in thatbuilding. So, when you talk about value
accretion, it shows up in places like long
WALES and very low vacancies and rent
arrears because you get higher-quality
tenants—it’s not as simple as a 1 percent
or 10 percent uptick in building valuation
just because it has a Green Star rating.”

Emerging Trends in Real Estate® Asia Pacific 2022

At the same time, the incentive tocomply currently applies mainly tohigher-end assets that are the domain of
the bigger investment funds and large
corporate tenants. For other buildings,
the finances of ESG asset enhancement
don’t necessarily stack up, especially foropportunistic funds with shorter holding
periods. For them, there may be plentyof talk about green premiums, but theold discussion over return on investment(ROI) soon rears its head.
According to a value-add investor inJapan: “Frankly, things haven’t changed
that much for us. We discussed finding
buildings where we could materially

Exhibit 1-15 Investors’ Most important ESG Considerations
Energy efficiency
Energy performance monitoring
Total building carbon emissions
Green credentials(LEED, WELL, etc.)
Climate andenvironmental resilience
Reduced embodied carbon(for newly developed buildings)
Water consumption efficiency
Generation of on-site
renewable energy
0

1

2

3

4

5

6

7

8

9

Source: Emerging Trends in Real Estate Asia Pacific 2022 survey.

improve the HVA systems and theventilation and be able to put in filters andthings like that. But there’s a relatively
big limitation on what you can feasibly
do. You can build whatever you want
provided money is no object, but it’smore a tenant-driven question—it’s hardfor us as a landlord, unless we have atenant ready to commit, to reposition inthat way.”

fits within their ESG parameters andenvironment requirements versus one
that doesn’t, simply because the demandis going to be there. [Conversely,] people
will not be willing to buy or occupy things
that don’t fit their parameters. And our
retail customers are absolutely driving
that—the big multinationals will say: ‘Ilove this space, but I can’t possibly getit through because the building doesn’tmeet the requirements.’”

In other words, for now, values ofnoncompliant buildings are affected onlyin terms of opportunity cost, which isalways a moving target depending on theasset. According to another value-add
investor: “It’s a hot topic, but in practice
I haven’t seen that big of an impact invalues to the point where, because abuilding doesn’t comply, we’re going toding it. There’s too much money chasing
deals for that, so if anybody’s [bidding
lower] for properties for not being ESG
compliant, they’re just not going to win
the bid.”

One interviewee in Hong Kong noted
how the pandemic-driven downturn inmarket fundamentals was also having an
impact on ESG upgrading, as landlords
who paid little attention to ESG principles
in the past because their buildings werealways full begin to lose tenants to theirmore progressive peers. This may help
shift slow-to-change markets like Hong
Kong in the direction of cities in Australia,
for example, where a competitive
dynamic is more evident.

That said, the writing is on the wall. As
tenants and their workforces increasingly
require ESG-compliant buildings, theissue will escalate—perhaps within acouple of years—to a point where a“green penalty” will begin to apply.

Moreover, the same thinking applies tofunds. As one institutional fund manager
in China pointed out, “It creates anopportunity for managers that are being
proactive about ESG to lead the charge,
and I think you’ll see capital start tocongregate around the managers that are
taking this seriously.”

According to a manager at a U.S. fundgroup: “I definitely think it’s going toevolve. You’re going to start seeing
people paying more for a building that

The recent proliferation of ESG mandates
has other consequences, too. First,
because newly developed buildings willinvariably be built to energy-efficient
standards, it generates further demandfor build-to-core assets already popularwith investors looking to manufacture
yield. This idea has particular resonancein Asian markets that remain structurally
undersupplied in investment-grade realestate.
Second, it is acting as a catalyst for
redevelopment of older buildings.
According to a developer in Hong Kong:“You can always retrofit, but you’re nevergoing to achieve the same standards as
a new-build. So, if you have somethingthat’s 40 years old in a key location likeCentral that might last another five or 10
years if you retrofit, but even then still
won’t be grade-A compared to a newbuild, you have to think about biting the[redevelopment] bullet earlier.”
A final point to bear in mind with ESG
mandates is that they tend to apply
mainly to commercial real estate projects
where the investor or developer has botha long-term perspective and an eye toongoing operating costs. Residentialbuild-to-sell developments, for example,
are a quite different prospect. As one
Australian residential developer said: “Adeveloper building to sell is going to bevery reluctant to incur capital costs andreduce margin for the sake of ongoing
operational cost-saving in a building they
will have no interest in post-completion.”

Emerging Trends in Real Estate® Asia Pacific 2022 19

Chapter 1: A Brave New World

Japan: Key Themes
Historically, Japan has had strong appeal
among foreign real estate investors due
to its reputation for stability, liquidity, andcheap debt. Today, with instability of one
kind or another increasingly evident inmarkets across the globe, these qualities
are more prized than ever. Japan’s stableeconomy tends to be reflected in a lackof large fluctuations in its real estatetransactions, and this has proved to be
the case during the pandemic.
Both deal count and volumes haveremained within 20 percent of the
pre-pandemic average, according to
RCA, although the lack of pickup intransactions experienced by other Asia
Pacific markets during 2021 is also
noteworthy. At US$26.3 billion in the first
three quarters of the year, transaction
volumes were down 16 percent year-onyear.
In addition, with the exception of theinbound tourism sector, the Japanese
economy remains quite self-contained.
Domestic demand accounts for 95
percent of the retail market and some 91
percent of the accommodation market,

Data and Verification
As ESG agendas become more
prominent, both top-down and bottomup transparency becomes key. Boxticking is no longer enough—buildings
owned by funds with ESG mandates
must now formally verify individual
asset performance, firstly at the
global investor level, and then also to
occupiers, as multinational tenants begin
holding landlords to the same high
ESG standards. In practical terms, thismeans adopting technology to measure

20

making it less exposed to threats posedby global travel bans, foreign imports,and supply chain constraints. Finally,
relative weakness in the yen (downagainst the U.S. dollar by some 10
percent year-on-year at time of writing) is
icing on the cake for foreign funds.
Competition to buy prime assets in Japan
has always been tight and remains sotoday. In particular, the local logistics
sector remains both highly sought afterand very liquid, with Japan accounting
for 39 percent of all Asian logistics
deals in 2020, according to Real Capital
Analytics. Rents are high and vacancies
low. But with yields now among thethinnest in the region, placing capital is
hard work. As one Tokyo-based fundmanager put it: “Everybody and theirbrother is trying to buy logistics, so if it’sa stabilised asset we typically don’t evencompete on it because somebody will
always pay more than us.”The office sector has traditionally been
the go-to asset class in Japan, but
capital values at the top end of themarket remain stubbornly high despite

various aspects of building usage andefficiency, as well as creating a strategicplan outlining a pathway to ESG viability
during the hold period.
As a result, real-time data collection
and analysis have become the biggest
catalysts for promoting green agendas,
a process involving the installation of
sensor-based technology measuring
anything from electricity and water
use to the flow of people in buildings,
air circulation levels, elevator usage,

Emerging Trends in Real Estate® Asia Pacific 2022

rents continuing to slide (class-A rents fell
1.4 percent quarter-on-quarter in the third
quarter of 2021, according to CBRE).
In part, this is because large Japanesecompanies remain fixated on 18- to
24-month planning cycles that cause
them to defer making decisions about
real estate portfolios. In addition, Tokyo
is the focus of a seemingly bottomlesswell of liquidity from both domestic andforeign institutional buyers who tend to
prize stability over returns. In the words ofa different locally based fund manager:“Office values continue to be extremely
strong in Tokyo in spite of weakness
on the rent side—it’s being driven bycapital looking for a home, very closely
correlated with global optimism, global
liquidity, and global risk concerns.”
Tightness in class-A offices, however,which currently trade at cap rates in thelow 2s, is not necessarily replicated in theclass-B market, where rents and capitalvalues have fallen and competition is
supposedly less intense due to a widely
held perception that long-term demand
for space may have been permanently

and maintenance issues. Building
management systems can also create
digital twins—virtual models of entire
smart building environments that draw on
real-time data from sensors networked
via the internet of things or, in future, 5G
technologies.
Just as important, of course, is theanalytics used to put that data into
context, allowing managers to detectproblems, improve efficiency, and, mostsignificantly from an investment point of

reduced by corporate work-from-homepolicies.

tourism (Japan saw almost 32 million
visitor arrivals in 2019).

A contrarian view, however, is that workfrom-home will never gain real traction in
Japan given the abundance of smaller
homes and a cultural bias in favour ofworking in the office. Some foreign funds(including a few core players) havetherefore adopted value-add strategies
for class-B offices, partly with a view torepositioning, and partly to riding out
pandemic weakness until an overarching
recovery lifts rents and values.

Perhaps surprisingly, however, investors
were generally bullish about prospects
for Japanese hotel assets, with several
fund managers earmarking them as
investment targets in the expectation of arebound in domestic tourism. So far, few
assets have traded due a standoff overasset valuations (see chapter 3 for more).

Another popular theme carried overfrom 2020 has been sale-and-leaseback
deals, with established local companies
continuing to sell off noncore assets(such as corporate headquarters) to raise
cash.
Across the Asia Pacific, arguably theworst-performing sector over the lastyear has been hotels. The Japanesehospitality sector has been no exception,
especially in the context of a hotel
construction boom sparked by strong
pre-pandemic growth in internationalview, satisfy the all-important reporting
requirements that prove buildings are
performing to required standards.
According to one private-equity investor:“Once you have it, it’s incredibly powerful
because you can get right down tomachine-level data, and suddenly you
have insights across your portfolio ofwhat buildings are doing well, whatbuildings need attention, and where
you benchmark against the rest of yoursector. So in terms of driving capex

Recently, Japan’s build-to-rent residential
sector has become a magnet for foreign
funds. Once unfashionable, multifamily
assets caught the eye of high-profile
institutional investors a few years ago as
they cast about for long-term, low-riskplaces to park capital. As the only mature
multifamily market in the Asia Pacific,
Japan ticks those boxes because it isconsidered to have low leasing risk aswell as potential for rental increases.

buy portfolios is stronger than ever.
According to one fund manager, “If you
look at European investors, and whereresidential pricing is in Europe, they
still think that even at a 2.5 or 2.75 cap
rate, residential looks pretty attractive inJapan, particularly given low borrowing
costs.” Further compression therefore
seems likely.
With many larger multifamily portfolios
having already sold, however, assemblinga big-enough collection of assets tocreate a tradeable portfolio has becomea problem. Some investors haveturned to forward purchases as a way
around this, thereby also establishing
relationships with developers who candeliver a pipeline of new product overtime. Forward commitments are notwithout controversy, however, given theaggressive underwriting assumptions
they often involve (see chapter 3 for morediscussion).

Although cap rates for Japanesemultifamily assets have steadily
compressed over several years (fromaround 5 percent to current levelsof 3 percent or less), competition toinvestments, you can be so much moretargeted across your portfolio.”
At the same time, the complexity—not tomention the expense—of installing thistype of technology is considerable. One
large private-equity fund interviewed
for this report was in the process of
implementing a global data management
platform across many thousands ofassets in dozens of countries, covering
every building they owned.

That kind of endeavour might be amultiyear exercise, however, so in themeantime, investors are resorting tobuilding certification standards suchas the Global Real Estate Sustainability
Benchmark (GRESB), Leadership in
Energy and Environmental Design(LEED), or any of the national equivalents,
as proxies to show a minimum baseline
has been met.

Emerging Trends in Real Estate® Asia Pacific 2022 21

Chapter 1: A Brave New World

According to a Singapore-based fundmanager, these are “increasingly
becoming a necessity because a lot ofcustomers don’t want to hire someone
to do an audit, but if they can say, ‘Look,here’s all the documentation certification
and analysis,’ it quickly allows them to get
up to speed. And it’s also able to show
continuing improvement in the building,
not just for the environmental [aspects],
but also for social and governance andthe interactions with the communities—it’s sometimes harder to measure, butpeople are now always asking about
them.”

Exhibit 1-16 Highest-Impact Technologies in the Next Five Years

Smart building systems
Big data and analytics
Digital property management
and brokerage platforms
Artificial intelligence
Virtual and augmented reality
Contract management
and blockchain
Financing solutions
and crowdfunding
Robotics
0
1
Least important

2

3

Source: Emerging Trends in Real Estate Asia Pacific 2022 survey.

22

Emerging Trends in Real Estate® Asia Pacific 2022

4

5

6

7
8
9
Most importantChapter 2: Real Estate Capital Flows“Geopolitical risk has always been an issue in the region. I’m not clear that
this time is any different, but the real question for our investors is: Are you
getting paid to take that risk?”
The same overarching themes of
economic stability, market liquidity, andreliable cash flows once more drove
sentiment for the year’s Emerging Trends
survey. In an investment environment
characterised by abundant core capitaland a flight-to-safety mind-set, the top
Investment Prospects rankings wereagain populated by established gateway
cities, more or less mirroring the best
performers from last year.
What is perhaps more surprising thanthe persistence of a safety-first mentality
during such stressful times in the market
is that the scores in this year’s pollcame in somewhat weaker, even as
interviewees embraced a more positive
outlook. Only five cities in the 2022 table,
therefore, counted as “generally good”(compared with nine last year), three as“generally poor” (compared with one
last year), and the rest as “fair.” Whether
this implies a more sober assessmentof upcoming challenges, or whether lastyear’s scores were just a view-from-thebottom perspective, is hard to say.
Otherwise, the main difference between
this year and last is that sentiment at thebottom end of the table was noticeably
weaker, with six cities scoring lower thanlast year’s laggard, Hong Kong.
The fact that most cities received
generally positive ratings can probably
be attributed to factors noted in the lastchapter.
• Regional markets continue to see
ever greater volumes of investment
capital pointed at regional real estate
assets.
• As a result, capital prices remain
surprisingly high across most markets,
despite mostly weaker rentals.

24• Regional economies remain, forthe most part, more resilient than
expected.
• The light at the end of the tunnel
seems brighter.
Exhibit 2-1 City Investment
Prospects, 2022
Generally poor

Fair

Generally good

1 Tokyo

6.17

2 Singapore

6.08

3 Sydney

5.95

4 Melbourne

5.74

5 Seoul

5.52

6 Osaka

5.50

7 Shanghai

5.47

8 Ho Chi Minh City

5.44

9 Shenzhen

5.44

10 Guangzhou

5.35

11 Auckland

4.88

12 Beijing

4.83

13 Taipei

4.49

14 Hong Kong

4.44

15 China—second-tier cities

4.38

16 Bangkok

4.18

17 Mumbai

4.16

18 Jakarta

4.09

19 New Delhi

4.06

20 Bangalore

3.87

21 Manila

3.86

22 Kuala Lumpur

3.79

Source: Emerging Trends in Real Estate Asia Pacific2022 survey.

The top-ranked investment prospect
this year is Tokyo, swapping places with
Singapore, which featured first in boththe 2020 and 2021 surveys. The city is
no stranger to top-of-the-table positions,having placed first or second no fewer
than six times over the last 10 years (seeexhibit exhibit 2-2 Historical Investment
Prospect Rankings).

Emerging Trends in Real Estate® Asia Pacific 2022

Tokyo’s enduring popularity is down toa variety of factors: a stable economy,
combined with a deep and liquid market,
resilient asset values, and a long trackrecord of better-than-expected returns.
In addition, while cap rates seem thin,
low interest rates (less than 2 percent
at 75 percent loan-to-value [LTV] over
five years) generate yield spreads that
outperform markets with apparently
better fundamentals.
Finally, in the current context, the fact that
the Japanese economy is fuelled mainly
by domestic demand—with the notable
exception of the formerly fast-growinginternational tourism sector—makes it
relatively less exposed to outside shocks.
That said, investment in Tokyo does
face headwinds. With a core market
dominated by a cabal of well-heeled
domestic developers, sovereign wealthfunds, and global institutional players,
returns expectations are low. As a result,yields for high-end properties remain outof reach for most private-equity capital,
meaning that foreign investors must
generally look elsewhere to meet targeted
returns.
While this still leaves plenty of otheroptions—logistics, residential, or nonCBD office strategies, for example—it
does render the idea of Japan as a truly
core market somewhat illusory for mostinvestors.
In addition, Japan’s isolationist COVID-19
policy may count against it as the rest of
the global economy begins to open. In
the words of one Tokyo-based investor:“The only caveat I would share is thatwhen you look at what’s happening inEurope and the U.S., the fact that borders

are open and people are starting to travel
creates a new dynamic. My concern withJapan is that it could stay as it is today,with no possibility for foreigners to comein without a visa for a long time—that
would have an impact at some point on
the economy.”

Exhibit 2-2 Most Active Asia Pacific Metro Areas, Real Estate Transactions
3Q 2021 YTD

Cross-border

Domestic

YOY ChgSeoul$582,120,241$18,304,815,161

42%

2

Tokyo

$2,722,012,046$11,966,964,138-8%

3

Shanghai$3,004,156,547$6,455,435,578

1%

4

4

Beijing$609,995,019$7,626,928,604

3%

4

5

5

Hong Kong$1,606,776,272$6,512,818,511

44%

3

6

6

Sydney$3,236,697,949$4,285,605,323

57%

8

8

7

Melbourne$3,700,330,583$3,081,371,960

87%

7

12

8

Singapore$2,915,215,924$2,844,594,628

115%

9

10

9

Shenzhen$1,366,971,739$2,731,716,747

53%

Although its markets have always
been thinly traded, second-ranked
Singapore has seen a strong rebound intransactions in 2021 following a lackluster
2020. Office prices have remained
strong, reaching record highs for grade-A
properties, and a lack of sellers may
serve to push up prices over the shortterm. Meanwhile, the downward trend inrentals reversed in the second quarter of
2021.

11

13

10

Brisbane$720,886,986$2,521,918,777

182%

10

9

11

Osaka

13

7

12

Guangzhou

43

19

13

15

35

18

Buying sentiment in Singapore has
been boosted recently by expectationsof supply shortages. This is due to anumber of factors: a limited pipeline of
new development sites over the nearterm, the withdrawal of stock from themarket for redevelopment purposes,
and a belief that Singapore may benefit
should foreign companies relocatefrom Hong Kong, or choose Singapore
as a location for their Asia Pacificheadquarters.

To be fair, the same concern applies toother Asia Pacific markets. In particular,
Mainland China and Hong Kong shareeven stricter pandemic policies; thesehave served them well in terms ofcontaining the number of infections, but
may leave them marooned economicallyas the rest of the world reopens forbusiness.

2019

2020

YTD'21

2

2

1

1

1

6

3

5

Metro

$876,135,319$1,782,063,316-29%$1,157,287,288$805,783,199-22%

Pangyo—$1,720,113,448

285%

14

Perth

$662,667,830$894,399,491

355%

15

15

Taipei$56,498,505$1,343,243,699

10%

20

20

16

Saitama$263,657,548$1,069,795,738

68%

22

17

17

Nagoya$511,344,194$719,783,806

8%

19

14

18

Yokohama$339,704,951$882,054,204

-33%

17

16

19

Chiba

$333,541,107$710,799,106

34%

14

18

20

Adelaide$343,462,085$658,733,342

27%

67

29

21

Suwon

—

$891,027,828

116%

23

32

22

Hangzhou—$871,782,811

97%

25

24

23

Chengdu—$869,463,366

102%

31

22

24

Nanjing$408,748,363$437,588,600

47%

27

48

25

Suzhou$172,154,435$662,737,064

224%

Source: Real Capital Analytics.
Note: YTD 2021 is through third quarter.

While this is to some extent offset as
the city continues to tighten criteria forincoming foreign workers, one fundmanager was pricing in a 30 percent
increase in rental growth over the period
to 2026. In our survey (see exhibit 1-11
in chapter 1), Singapore emerged as the
only Asia Pacific city expected to see
higher rents in 2022.

Emerging Trends in Real Estate® Asia Pacific 2022 25

Chapter 2: Real Estate Capital Flows

Another city whose stock has risen thisyear is 14th-placed Hong Kong, which
had been rooted to the bottom of thetable for the two previous years due totwin shocks: a prolonged episode ofsocial instability, followed by pandemicinduced declines in commercial asset
values.

containment policy, which has severely
restricted travel to and from a city long
regarded as one of Asia’s busiest andmost convenient hubs.
The bottom of the table this year features
virtually all of the region’s developing
markets, which continue to sufferfrom high rates of COVID-19 infection.
According to one Manila-based analyst:“The expectation is we’re going to get
out of this down cycle pretty soon, butfrom the perspective of foreign investors
we’re not yet on the radar. If you look atneighbouring countries, a lot of them arealready talking about moving into therecovery phase, and their fundamentals
are now back in terms of occupierdemand. But from where we are at the
moment, I don’t see a lot of them on thehorizon.”However, while the general view may bethat the worst has now passed for Hong
Kong’s markets, investors based there
continue to see them as “soft,” given alarge pipeline of new office supply andongoing uncertainty over the prospects
for net takeup. New occupiers from
Mainland China will probably arrivein the city when the border reopens,
but sentiment among international
companies has been hit by concerns
over the political situation and (evenmore so) by Hong Kong’s strict pandemic

Exhibit 2-3 Historical Investment Prospect Rankings

2022 2021 2020 2019 2018 2017 2016 2015 2015 2014 2013
Tokyo

1

2

2

4

7

12

1

1

1

13

16

Singapore

2

1

1

2

3

21

11

9

7

3

1

Sydney

3

3

4

3

1

9

2

4

5

4

3

Melbourne

4

6

5

1

2

16

3

5

13

10

7

Seoul

5

4

10

9

19

17

7

7

15

14

19

Osaka

6

8

8

5

10

15

4

3

9

22

21

Shanghai

7

7

7

6

4

6

9

6

2

2

2

Ho Chi Minh City

8

5

3

7

5

4

5

13

19

18

10

Shenzhen

9

9

6

8

6

5

18

19

10

16

—

Guangzhou

10

10

9

10

8

10

20

20

6

15

6

Auckland

11

13

19

20

9

14

10

15

17

17

20

Beijing

12

12

13

12

11

11

14

10

8

7

5

Taipei

13

11

14

21

22

22

17

18

16

9

6

Hong Kong

13

14

22

22

14

13

18

15

21

18

11

China—second-tier cities 15

17

20

18

17

20

22

22

12

8

—

Bangkok

16

14

11

11

16

8

19

16

11

6

14

Mumbai

17

15

12

13

12

2

13

11

22

20

15

Jakarta

18

16

18

15

14

7

6

2

3

1

11

New Delhi

19

18

15

17

20

13

16

14

21

21

12

Bangalore

20

21

16

16

15

1

12

17

20

19

9

Manila

21

19

17

19

18

3

8

8

4

12

18

Kuala Lumpur

22

20

21

22

21

19

21

12

14

5

17

Source: Emerging Trends in Real Estate Asia Pacific surveys.

26

Emerging Trends in Real Estate® Asia Pacific 2022

Despite boasting both a young
demographic and an economy withpositive long-term fundamentals, Manila
will struggle to digest a large amount ofincoming supply on both the residential
and office fronts, even as demandhas weakened due to lockdowns andbusiness closures. In particular, theChina-dominated online gamblingindustry, which had been the target ofso much of the new supply, is currently
in limbo and faces an uncertain future.
Business process outsourcing (BPO)
facilities, meanwhile, have fallen victim to
the work-from-home wave, although overthe longer term the industry may benefit
from a global trend towards employment
decentralisation.
India, finally, is viewed with a similar
degree of negativity, probably as alegacy of the devastating wave of
COVID-19 infections that hit the country
during April and May. In reality, however,Indian markets have rapidly regained
momentum in the second half of the year.
In terms of occupancy, the main demand
driver is ongoing growth in the Indian
technology sector, much of it providing
services to global outsourced labour
markets. According to one locally based
interviewee: “If you look at last year’s
data on grade-A office, absorption was
down 40 to 50 percent across mostcities. But this year, tenants are backwith a vengeance—they’re taking spacebecause even I can see a demand/
supply shortfall in the offing.”
In addition, Indian transaction volumes
recorded their second-highest total
ever, according to RCA, with first-halfinvestment of US$2.4 billion. Whilesmaller private-equity funds havecontinued to avoid India, on-the-groundteams from sovereign, institutional, andlarge global private-equity funds continue
to place substantial sums in multiple
asset classes across the country.

Exhibit 2-4 Deal Count, Volume Change, 2019–2021

Volumes

Deal count
Japan

China
125%

100%

100%

75%

75%

50%

50%

25%

25%

0%

0%

0%

-25%

-25%

-25%

-50%

-50%

-50%

-75%

-75%

'19

'20

'21

South Korea

125%

100%
75%
50%
25%

'19

'20

-75%

'21

100%

75%

75%

50%

50%

25%

25%

25%

0%

0%

0%

-25%

-25%

-25%

-50%

-50%

-50%

-75%

-75%

50%

'19

'20

'21

'19

'20

-75%

'21

'20

'21

Hong Kong SAR

125%

100%

75%

'19

Singapore

125%

100%

Australia

125%

125%

'19

'20

'21

Source: Real Capital Analytics.

Development Prospect
Rankings
Development prospect survey results
were marginally weaker this year,
although feedback in interviews wasmore positive given an expected recovery
in demand for space in 2022 that should
help support underwriting for new
development. Build-to-core strategies arealso popular given ongoing appetite forcore assets in an undersupplied market.
Ranking at number four in thedevelopment table (up from seventh
last year), Seoul is attracting investors
for both office and logistics projects.
Transactions have soared in South Korea(mostly in Seoul) since the pandemic
began at the beginning of 2020,
culminating in US$10.6 billion worth ofdeals in the third quarter of 2021—thehighest in the Asia Pacific region.
Relatively high development yields havedrawn investors from other core markets
in the region, with several interviewees in

Exhibit 2-5 City Development
Prospects, 2022
Generally poor

Fair

Generally good

1 Singapore

5.80

2 Tokyo

5.65

3 Sydney

5.59

4 Seoul

5.43

5 Ho Chi Minh City

5.41

6 Shanghai

5.31

7 Melbourne

5.31

8 Osaka

5.30

9 Shenzhen

5.26

10 Guangzhou

4.94

11 Taipei

4.72

12 Beijing

4.70

13 Auckland

4.69

14 China—second-tier cities

4.64

15 Hong Kong

4.41

16 Jakarta

4.37

17 Mumbai

4.37

18 Bangkok

4.33

19 Bangalore

4.28

20 New Delhi

4.25

21 Manila

4.09

22 Kuala Lumpur

3.92

Source: Emerging Trends in Real Estate Asia Pacific2022 survey.

Tokyo indicating a preference for deals
in Seoul rather than their home market.
Investment in Seoul commercial property
has also been boosted in 2021 by buying
from domestic institutional funds thatwould normally invest internationally,
causing a spike in commercial property
values of around 18 percent year-on-year
in the third quarter, according to RCA—
the highest of any gateway city globally.
Rising prices have also convinced
investors to gravitate towards forwardfunded deals, which represented fully
one-third of activity in the third quarter.
At number five, Vietnam has again
been singled out as a popular centre
for development in the wake of several
years of strong foreign investment in local
industrial parks. According to one fundmanager: “The manufacturing shift isreal. Buyers [in our industrial park] are all
Asian—[including] Japanese, Korean, aHong Kong group, and Taiwanese. We
like housing, too, but that’s an opportunitythat will be there for a while—getting inearly on industrial and logistics is thehere and now.”

Emerging Trends in Real Estate® Asia Pacific 2022 27

Chapter 2: Real Estate Capital Flows

While Vietnam has many of theright ingredients for export-driven
manufacturing, it has been badly affectedby COVID-19 lockdowns, with manyfactories closed and their workforces
dispersed. Development and investment
work has therefore slowed significantly,
especially in the south, where industry
is centred more on textiles and lightmanufacturing. In the north, where worker
concentrations are less dense due toa focus on technology, the picture isdifferent. This regional divergence exists
also in other markets and reflects how the
impact of COVID-19 can vary significantly
between different areas of the same
country.
As a result, the shutdowns mean thatsome large manufacturers with factories
in Vietnam have either found or are
looking for alternate bases, including
in China, from where many migrated
to Vietnam in the first place. Foreign
investment may slow significantly in
2022, therefore, in the absence of anear-term change in government policythat seems unlikely with only 24 percentof the population fully vaccinated against
COVID-19 as of the end of October 2021.

Cross-Border Investment
Returns
Widespread travel embargoes preventing
convenient travel have also limited flowsof cross-border capital. This means thatthe rise in transactions seen in 2021 hascome largely at the hands of domestic
investors. Still, the dollar value of crossborder deals—at almost US$50 billion,
or around 25 percent of this year’s
total—has not dropped substantially frompre-pandemic years, when it accounted
for about 33 percent of buying.
Capital originating from within the region
has outstripped purchasing by Europeand U.S.-based funds for the first timesince 2012, according to RCA, anotherunsurprising side effect of global travel
restrictions.
In particular, Singapore was the biggest
single source of outward investing
into the Asia Pacific, deploying some
US$9.3 billion in the first nine monthsof the year. Sovereign wealth capital
was prominent (accounting for half thatfigure), as was spending by local REITs,
who used access to cheap debt to sell

assets from their home portfolios andbid aggressively for higher-yielding
properties elsewhere, both regionally andglobally.
Strong investment flows to Australia havecontinued in 2021 despite the travel
embargo. Again, Singaporean capital
was prominent, with one major institution
picking up a large Australian logistics
portfolio in the year’s most prominent
deal.
Incoming investment to Japan was
down 40 percent in the first nine months
compared with the five-year average, due
mainly to falling flows from Americasbased funds, which historically haveaccounted for most foreign-sourced realestate investment in the country.
While overall investment in Mainland
Chinese commercial real estate remained
at near-record levels, incoming capital
flows have been disrupted by questions
over the direction of domestic economic
policy, falling again by some 40 percent
compared with average volumes overthe last five years. A fund manager fromone large private-equity fund said that

Billions

Exhibit 2-6 Asia Pacific Investment by Source of Capital, 12-Month Rolling Volumes
Domestic

Cross-border within APAC

Cross-border from outside APAC

% Cross-border

$200

40%

$150

30%

$100

20%

$50

10%

$0

0%
'12

'13

'14

'15

Source: Real Capital Analytics.

28

Emerging Trends in Real Estate® Asia Pacific 2022

'16

'17

'18

'19

'20

'21

this created a “whack-a-mole” situation
for foreign investors that was harder tonavigate than preexisting U.S./China
trade tensions because of uncertainty as
to which parts of the economy might beaffected by current or pending changes.
Meanwhile, outgoing investment from
Chinese developers remains subject
to tight regulatory control, registering
US$1.9 billion in the year to October
2021, according to brokers KnightFrank, down from a peak of US$17.5
billion in 2017. In particular, Chineseand Hong Kong capital has “essentiallydisappeared” from Australian markets,
according to an investor based there.

Global Funds Migrate to Real
EstateIn principle, a combination of rising
inflation and ultra-low bond yields makes
hard assets increasingly attractive toinvestors. Global allocations to real estate
can therefore be expected to increaseover the near-to-medium term.
As the head of one diversified privateequity fund said: “Real estate global
capital flows are up, broadly speaking,and that makes sense. Our pension
people are in a bit of bind in terms ofdelivering 7 percent returns in a zerointerest rate fixed-income market, so
where do you go? And the answer every
time is real estate or alternatives.”
That applies in particular to international
capital that remains underinvested in
Asia Pacific assets but would like to tap
its better prospects for growth. Interest
among global funds has therefore
rebounded from last year, when a safetyfirst mind-set prevailed and the likelihoodof distress appearing in Westerninvestors’ backyards provided plenty ofopportunities to profit locally.
As one U.S.-based fund manager said:“Today, Asia represents about 35 to
40 percent of the investable universein commercial real estate, so global

Exhibit 2-7 Expected Change in Capital Flows into Asian Markets between
Now and the End of 2022
2022

2021

2020
5.17

Americas

6.30

Asia Pacific
4.99
Europe4.24

Middle East/Africa
12Large decline

3

4

5
6
Stay the same

7

8
9
Large increase

Source: Emerging Trends in Real Estate Asia Pacific surveys.

Exhibit 2-8 Expected Change in Capital Flows into Asian Markets over the
Next Five Years
2022

2021

2020
6.44

Asia Pacific
5.48

Americas5.30Europe
4.48

Middle East/Africa
12Large decline

3

4

5
6
Stay the same

7

8
9
Large increase

Source: Emerging Trends in Real Estate Asia Pacific surveys.

investors have to have an allocation now
and that’s what has been driving it.”
Another reason global capital flows
have resumed to Asia Pacific markets
is that returns in at least some local
asset classes are higher than they arein the West. This applies in particular
for logistics and multifamily properties.

According to a fund manager in Tokyo:“For European investors, they look atwhere residential pricing is in Europe
and think that even at 2.5 or 2.75 cap
rates, residential looks pretty attractivein Japan, particularly given borrowing
costs.”

Emerging Trends in Real Estate® Asia Pacific 2022 29

Chapter 2: Real Estate Capital Flows

Of course, that begs the question ofwhether Asia Pacific risk/return profiles
match those in the West. As the investor
continued: “The problem I have withthe whole market is that it’s being
driven much more by liquidity thanby fundamentals. People are looking
at all markets as being almost equal,
and I feel there’s a bifurcation of risk/
return expectations—people are justbeing driven by returns. Whether thatwill continue long-term or not is a great
debate. But we’re still buying.”
At the same time, competition to place
funds—especially into core assets—remains intense. Dry powder has beenbuilding for years, reaching a record
US$52 billion as of mid-2021, according
to Preqin. Compounding that problem,
estimated allocations to real estate by
Asia Pacific institutions currently stand atjust 7.5 percent, well short of a targeted
11.5 percent, according to consultants
Hodes Weill (see exhibit 2-9).
Fundraising for new investment funds,
meanwhile, has picked up in 2021, with a

total of US$8.6 billion in aggregate capitalraised just before the end of the first half,
according to Preqin, already surpassing
the first-half total from the most recent
normal year in 2019. Activity has centred
mainly on raising capital for core andvalue-add strategies.
With site visits to many potential
deals now impossible due to regional
lockdowns, larger investment funds withon-the-ground teams in different markets
have benefitted, receiving significant newcapital from international funds whose
managers are unable to fly internationally.
According to an investor at one large
private-equity fund: “Because people
can’t travel, they’ve become more
comfortable with on-site due diligencethrough Zoom. But there’s still hesitancy,
so the big brands are getting bigger a lot
faster and the smaller guys are suffering.
It’s an unfortunate situation; we see thisevery time we have a crisis.” Whether thiswill slow the preexisting trend in favour ofmanaging investments in-house remains
to be seen.

Exhibit 2-9 Real Estate: Targeted Allocations and Dry Powder by Global
Institutional Investors 1H 2021

Actual allocation

Dry powder

14%
0.00%

12%
0.60%
10%
10.00%
8%

0.60%

4.00%

11.40%

9.50%
7.50%

6%
4%
2%
0%

All institutions

The Americas

Source: Hodes Weill Associates, JLL estimates.

30

Emerging Trends in Real Estate® Asia Pacific 2022

EMEA

APAC

Sovereigns Turn to Asia Pacific
AssetsCOVID-19 has restricted investment
activity among global sovereign wealthfunds (SWFs) in the same way it has withprivate-equity investors. This reduced
investment activity in Asia Pacific andother global markets saw them resort toparking capital in U.S. treasury bonds.
However, a survey of global SWFs
released in July 2021 found that morethan half (53 percent) of those funds
intended to increase investment in realestate over the coming year, with 27
percent planning to maintain buying at
existing levels. The study also found apreference for investments in emerging
Asia Pacific economies, and especiallyChina, based on stronger economic
growth, higher asset returns than in theWest, and a more effective pandemic
containment strategy.
The biggest player (potentially, at least)in the Asia Pacific SWF universe isJapan’s Government Pension Investment
Fund (GPIF), one of the world’s largest,with some US$1.7 trillion in assets.
Although GPIF announced several years
ago that it would diversify away fromJapanese government bonds in a bid
to boost returns, its targeted 5 percent
allocation to alternatives (including
infrastructure and real estate) has so
far failed to materialise, with alternative
assets representing just 0.7 percent of
its portfolio (i.e., some ¥1.3 trillion, orUS$11.4 billion) as of March 2021. Of
that, real estate assets represented ¥353
billion, or some US$3.1 billion.
This may change soon, however,following the announcement in July
2021 that holdings of alternatives would
more than double to 1.6 percent overthe medium term. Given that the fundhas seen a huge 25.1 percent increasein net asset value following its rotation
to equities in 2020, managers may now
have more confidence to take that step.

Exhibit 2-10 Attractiveness of
Economies for SWF Portfolios,
Three-Year Prospects

Exhibit 2-11 Preferred Investment Destinations for Asia-Based SWFs

North America
2017
8.0 7.8

2019

2021

83

Developed Europe

17

7.8
6.1

6.6

5.2

Developed APAC

33

Emerging APAC

0

Middle East

033

Latin America

United States

Emerging Europe0Africa0

China

Source: Invesco.
Note: Average score/10.

Source: Invesco.

REITs Consolidate

large merger took place in Singapore in
2021, and more consolidation is likely,
despite relatively high current shareprices. Such mergers are likely to include
cross-border deals between Japaneseand Singaporean REITs, as well as someof Singapore’s many smaller, illiquidvehicles, especially those specialising incurrently highly prized logistics assets.

Low yields offered by global sovereign
bonds have helped propel REIT markets
throughout the Asia Pacific in 2021, andas share prices rose through the first halfof the year, regional REITs were to ableraise significant fresh equity, bringing
in some US$3.3 billion in the second
quarter in the same period of 2020.
REIT spending was commensurately
higher, too. Singaporean REIT
investments surged some 50 percent
year-on-year in the first half to more than
US$1.7 billion, Australian REITs doubled
investments to $2.9 billion, while REITs
from Hong Kong, South Korea, andTaiwan also increased buying.
The large volumes of institutional capital
available for real estate purchases in
the region has been a catalyst for thecreation of bigger investment vehicles via
mergers of existing REIT platforms. One

Nor is this trend restricted to REITs—
other types of asset managers also arelooking to merge, both as a means toincrease assets under management
and because platform deals, by nature,facilitate the placement of large amountsof capital.
Otherwise, the region has continued tosee a surge in REIT listings. India created
its third REIT during 2021, adding afurther US$1.6 billion in capitalisation
to the local market. Several REITs werealso listed in the Philippines, and in June

China launched nine infrastructure REITs(C-REITs), raising a combined total of
US$5 billion, according to JLL.
A few peculiarities of C-REITs (some ofthem shared by REITs in the Philippines)
should be noted, however. In particular,
they do not directly own their underlying
assets (relying instead on securitised
income streams), are not allowed touse significant amounts of leverage,
and do not enjoy tax breaks. These are
all considered crucial components of
conventional REIT models in the West,and it is unknown the extent to which thismay affect their appeal to investors.
In addition, C-REITs are not yet allowed tobuy commercial real estate assets except
for industrial and logistics properties(including business parks). Eligible
categories are likely to be expanded in
the future, however, with the multifamily
sector earmarked as a likely beneficiary.

Emerging Trends in Real Estate® Asia Pacific 2022 31

Chapter 2: Real Estate Capital Flows

Bank Debt Still Cheap
The shaky fundamentals of different
regional economies and asset classes
might suggest that banks would
tighten lending terms, but in practiceinterviewees reported that debt remains
freely available in all major regional
markets (except China) on terms similar
to pre-pandemic deals.
According to a developer in Australia:“Not only are banks willing to lend, but
pricing is getting very keen for [loans to]residential development. If you want over
50 percent LTV and don’t have sufficientpresales, then the banks aren’t going tobe there, or it’s going to be a combinationof banks and some kind of nonbank
mezzanine lender. But even the cost ofthat is coming down significantly, so bothavailability and pricing has improved overthe past 12 to 18 months.”
The same applies in Japan, where thecost of capital has historically been low.
One locally based investor commented:“I was surprised at how aggressive thebanks were for financing a large logistic
spec development we’re doing—if they
like the product type, location, and thesponsor, they’re incredibly good terms.”
Responses to our survey also support
the idea that banks have remained
accommodative in their lending policies(see exhibit 2-12).
Regional banks’ handling of nonperforming loans has also proved
flexible, and is probably one of the main
reasons for the conspicuous absence ofdistress across the Asia Pacific, despite
rising numbers of underwater assets.
The extent of bank forbearance was not
anticipated last year, but at the end of the
day the reality is that foreclosure serves
few interests—not only would it mean
damaging banks’ own balance sheets,
but the risk of a chain reaction across the
economy is not merely hypothetical.
According to a Hong Kong–based fundmanager: “Just because your hotel isrunning at 20 percent occupancy today,
no one is expecting it to be at that levelin three years’ time. Real estate is amedium-to-long-term investment and I

Exhibit 2-12 Expected Change in Availability of Debt and Equity Finance
2022

2021

2020
5.95

Equity for financing
or new investment

5.73

Debt for refinancing
or new investment

5.20

Debt fordevelopment
1

2

3

4

Large decline

5

6

7

Stay the same

9

Source: Emerging Trends in Real Estate Asia Pacific surveys.

think you have to take the view that, overa five-year investment period, COVID will
not have destroyed value; it just means
you don’t get your expected return. So,
if in three years’ time you’re back to 85
percent of your usual NOI [net operating
income], that’s not a massive hit in termsof value—ultimately, it’s just a question ofwhether you have the holding power.”competitively priced, as more LPs comeround to the idea that, in the current
environment, debt strategies can be more
profitable than equity. Asia-domiciled
investors have been active in the spacefor some time, but a wave of new players
has arrived recently, mostly from theUnited States, ranging from insurance
and pension companies to investment
funds with special situations, higher-yield,
and opportunistic strategies, according to
one Sydney-based debt specialist.

While demand for debt in Asia has always
been dominated by banks, nonbank
debt is both increasingly available andExhibit 2-13 Availability of Debt by Type of Lender
2022

2021

2020
5.51

Nonbank
institutions*5.25

Mezzanine
lenders

5.24

Banks

5.02

Debt funds
Alternative
lending
platforms**

4.50

4.46

Sovereign
wealth funds
1
Large decline

2

3

4

5

6

7

Stay the same

Source: Emerging Trends in Real Estate Asia Pacific surveys.
*Insurers or pension funds. **Examples include peer-to-peer lending and crowdfunding.

32

8Large increase

Emerging Trends in Real Estate® Asia Pacific 2022

89Large increase

Still, appetite remains relatively thin, evenin Australia, which is the biggest market
for nonbank debt in the Asia Pacificgiven local regulatory restrictions on
the banking sector (see exhibit 2-13). In
general, projects with noncore assets,questionable credit profiles, or that
require high LTVs or long-tenor loans
tend to be those resorting to nonbank
money. According to one local developer:“We’ve had approaches from family
offices and Superfunds, but when vanillabank debt is so easy, cheap, and readily
available, and the security and structureis there, why would we change?”

In particular, the volume of green bonds
from China tripled in the first half of 2021
to reach US$26.1 billion, making it thelargest issuer in the world, according todata provider Refinitiv. South Korea hasrecently emerged as another major Asia
Pacific issuer, with Japan now ranked
third.
Exhibit 2-14 Green Bond
Issuance (in Billions of Dollars)

By region, in 2020 (billions of dollars)
156.0

EuropeOne answer to that question—and apossible opportunity for the nonbank
market—is that as social and economic
conditions begin to normalise, banks may
end their accommodative stance andstart calling their nonperforming loans.
At that point, said the debt specialist,“My sense is there’s plenty of scopefor nonbank [players] to take out banks
at higher rates. But because there’s
more capital than deals, you have tobe creative. A lot of those guys end up
partnering with lower cost-of-capitallenders and then stratifying the loan in
the background. I could see that beinga solution, and that’s the real benefit of
the increased number of lenders in ourmarket—borrowers have more options
to raise money. So that’s another way ofsaying I don’t see distressed or forced
sales arriving in any great volume.”

Green Finance Comes of Age
As ESG considerations become evermore important for real estate owners
and developers, the same mandate is
being applied to the way that projects
are financed. Green loans and bonds are
therefore increasingly visible in the market
as banks and financial organisations takeup the environmental mantle.
In 2020, total Asia Pacific green bondissuance (i.e., not related just to realestate) reached US$53.2 billion. That
accounted for just 18 percent of the
global total, but this figure is increasing
rapidly in both absolute and proportionalterms.

61.5

North America

53.2

Asia PacificSupranational

10.3

Latin America

7.9

Africa-1.2

Source: Climate Bonds Initiative.

Green borrowing can be tied to avariety of issues, ranging from housing
affordability to a lack of diversity incorporate boardrooms, but by far thebiggest theme relates to the environment,
and in particular projects that address
climate change.
For borrowers, perhaps counterintuitively,
the real benefit of green finance is notnecessarily access to lower cost ofcapital. In fact, green bonds in the Asia
Pacific region are currently priced ona par with conventional bonds, while
in Europe they trade at a premium ofaround 9 basis points (bps), according
to the Association for Financial Markets
in Europe. And although green loans
enjoy a discount of up to 30 bps tostandard lending costs, very often thereal incentive will lie in the fact that
capital is available at all, or that it comeswith higher leverage, or better access tofunding at an earlier stage of the project,
where the risk is potentially too high tobring in a major bank.

be more willing to lend to a project if
it qualifies as green than they would if
it doesn’t. As a developer in Australia
put it: “There are buckets of money
popping up everywhere that are tied to
ESG, all through companies or financeorganisations having their own ESG orpooled ESG fund. So, if a superannuation
fund has a $200 billion pool, they mightallocate $50 million to clean energy orenvironmental initiatives—in fact, they
can’t get it out the door quick enough, so
it will generally be cheaper or easier toget.”
Also, as one analyst put it: “We’rebuilding the ship as we’re sailing, but
I think where it’s going to end up isthat you’ll get price and terms ‘A’ forgreen projects, and price and terms‘B’ otherwise. Or else they’ll say: ‘We
don’t have much headroom for you as asponsor, but if you do a green loan, we’ll
find room in a different loan portfolio.’
And I think in the syndication space that’s
going to be important.”
Banks are particularly interested inproviding green financing to newbuildings with strong green credentials.
“I think that’s going to be priced reallyaggressively,” the analyst continued.
“Banks are going to want to bring that
onto their book sitting there at highcredentials and be able say, ‘We’ve got X
percent of the book at six-star Green Star
rating, or whatever it is.’”The incentive is therefore mutual. Banks
are motivated to recruit green projects tosatisfy internal or shareholder directives,
while building owners are motivated toqualify for loans or lending terms they
may not otherwise get. In the process,they also obtain cheaper capital, boost
building efficiency in ways that will lower
their operating costs, and attract moresophisticated tenants that will pay higher
rents—a true win/win situation.

From the financial institution point ofview, the need to grow their portfolioof green loans means that they may

Emerging Trends in Real Estate® Asia Pacific 2022 33

Chapter 3: Property Type Outlook“The office market is quite strong in that you don’t see corporates making big
decisions at the moment. But for retail, hospitality, and restaurant-typeservices, it’s been horrible; it’s been very, very tough.”
Historically, the most favoured asset
classes in Asia Pacific markets havebeen the office and retail sectors, whichcurrently represent some 66 percent
of investor portfolios in the region,according to JLL, compared with anequivalent 45 to 55 percent in the West.
The shine came off in 2020, however,as corporate work-from-home policies
and booming e-commerce sales sowed
fears of a secular shift away from moreconventional real estate uses, tilting
the balance towards a reweighting of
portfolios into new-economy themes andsafe-haven residential assets.
While doubts persist about the prospects
for both the office and retail sectors,
however, a notable reversal in sentimentoccurred during the second half of 2021,
as transactions for office properties
rebounded sharply (to a record US$22.7
billion in the third quarter, according toRCA) while retail assets recovered to their2019 levels. Many interviewees saw boththe office and retail sectors as currently
oversold, with potentially good prospects
over the next 24 months as governments
move to ease pandemic containment
policies.
Survey responses (see exhibit 3-1)
reflect this turn in sentiment, together
with a renewed focus on the hotel
sector. Interest in offices remains fairly
high, though significantly lower thanin our 2020 report. Retail, meanwhile,
has rebounded from the severe decline
seen in 2020, while both industrial andmultifamily sectors continue to gain
traction as investors shift focus towards
growth and/or safety.

Exhibit 3-1 Prospects for Commercial Property Types in 2022
2022

2021

2020
6.99

Industrial/
distribution
6.22

Multifamily/rented
residential
5.65

New for-salehousing

5.19

Office4.38

Hotels4.37
Retail1
Abysmal

2

3

4

5
Fair

6

7

8

9
Excellent

Source: Emerging Trends in Real Estate Asia Pacific surveys.

Exhibit 3-2 Broad Sectors in Which Investors Are Active or Plan to Be
Active in 2022			
2022

2021

2020
73%

Industrial/
distribution

71%

Office68%

Multifamily/
rentedresidential
50%

Retail45%

New for-salehousing40%
Hotels
0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Source: Emerging Trends in Real Estate Asia Pacific surveys.

Emerging Trends in Real Estate® Asia Pacific 2022 35

Chapter 3: Property Type Outlook

Given the overall immaturity of regionalbuild-to-rent residential markets, logistics
has become the overwhelming favourite
for investors in 2021—a trend that showsno sign of diminishing. Current investor
portfolio weighting to logistics propertiesof around 16 percent is therefore likely toincrease to 20 to 23 percent over the next
five years, according to JLL projections.

Exhibit 3-3 Current and Targeted Asset Allocation in Real Estate Portfolios

100%
90%

7%

80%

11%

36

24%

22%
20%

36%

40%

35%

36%

30%
20%
10%
0%

5%

9%

50%

OfficeCapital values, meanwhile, continue to bestrong no matter what. As one investor
said: “There are some places where
it’s a bloodbath from a fundamentals
perspective and we wouldn’t want to own
office at all—in Shanghai or Beijing, forexample—because there’s a massive
oversupply. So you’re seeing a collapse
in rents, but you haven’t seen a collapse
in values. There are just no transactions
because there’s a Mexican stand-off
between buyers and sellers.”

23%

60%

7%

6%
16%

70%

Another factor supporting this migrationis the fact that yields for Asia Pacificlogistics assets continue to behigher than yields for offices, thereby
encouraging continued cap ratecompression in the direction of current
European levels of around 3.0 to 3.5
percent.

With the exception of China (where
vacancies were already high) and South
Korea, office occupancy in Asia Pacificgateway cities has weakened significantlyin the wake of pandemic lockdowns,
partly as businesses have shrunk, andpartly as demand for space dried up
due to work-from-home policies. Asof the third quarter of 2021, however,fundamentals seem increasingly tobe turning a corner, with year-on-year
demand improving in Sydney, Melbourne,
and Shanghai (though remaining weak inTokyo) and quarter-on-quarter rents risingmarginally in Hong Kong, Singapore,
Shanghai, and Seoul, according to JLL.

8%

30%

15%
Asia PacifictargetAsia Pacific

31%

21%
Europe15%
North America

RetailOfficeIndustrial/logistics

Residential

Health care

Student
accommodation

Development

Other

Sources: ANREV, Preqin, JLL estimates.

Exhibit 3-4 Selected Asia Pacific Office Transaction Yields

Sydney

9%

Seoul

Tokyo

Singapore

Hong Kong

8%
7%
6%
5%
4%
3%
2%

'13

'14

'15

Source: Real Capital Analytics.

Emerging Trends in Real Estate® Asia Pacific 2022

'16

'17

'18

'19

'20

'21

Debate as to how demand for CBD
offices might be affected by work-fromhome and other secular influences
has become polarised. Although many
multinational companies are open toembracing working from home as a longterm permanent option for employees,
many—if not most—interviewees
had strong views that the impact on
occupancy rates in the Asia Pacific(with the possible exception of Australia)
will be minimal, and that currently soft
markets seen in some regional cities
reflect oversupply rather than a real lackof demand.
The reasons for the Asia Pacific’s
resistance to attrition from work-fromhome policies are well known—cultural
influences, office hierarchies, small
homes, and the desire to collaborate allplay their parts. In addition, as regional
markets continue to grow, service sectorsthat are currently significantly smaller(at about 50 percent of the whole) thanin the West (at 70 to 80 percent) createa secular tailwind of another kind thatshould act as a catalyst boosting uptakeof office space.
That said, there still seems to be an
acceptance that, even if regional
conditions may not be as favourable topervasive uptake of home working, ahybrid office/home approach is by now
well established and probably here tostay. This idea is supported by our survey
responses (see exhibits 3-5 and 3-6).
Still, although widespread uptake ofhybrid working practices may bringwith it long-term implications for a more
decentralised approach to workplaces(as discussed in chapter 1), it may
not result in an absolute reduction ofoccupied space. As a fund manager in
Sydney said: “We’re more interested in[investing in] areas such as Redfern [thanwe are the CBD], but we’re not expecting
CBD prices to dramatically decrease,as the shift in demand away from these
towers will likely be offset by the spaceper employee having to increase toaccommodate new working styles.”Exhibit 3-5 How Will Your Organisation’s Workplace Model Change asa Result of COVID-19?

Will adopt a hybrid
model with both remoteand office-based work

2022

2021
43%
19%

Will reduce staff
density in workplace

13%

Will not change
Will use more coworking
space (including serviced
offices and coworking)10%

Will use (more) satellite
offices to cater todecentralised workforce

8%

Will consolidate officelocations to cut costs

3%

Will reduce
open-office layout

2%

Will use less coworking space(including serviced offices
and coworking)

1%

0%

5%

10%

15% 20% 25% 30%

35% 40% 45% 50%

Source: Emerging Trends in Real Estate Asia Pacific surveys.

Exhibit 3-6 Average Days per Week Spent Working from Home before
and after the Pandemic
2022

2021

1 day
per week26%

2 daysper week

33%
12%

3 daysper week
4 daysper week

3%5+ days
per week

3%
24%

None
0%

5%

10%

15%

20%

25%

30%

35%

Source: Emerging Trends in Real Estate Asia Pacific surveys.

Emerging Trends in Real Estate® Asia Pacific 2022 37

Chapter 3: Property Type Outlook

What this means is that, to attract andretain talent, employers are moving toprovide workplaces that not only areless dense, but also offer better wellness
amenities, collaborative facilities, andexperiential spaces.
There is a universe of ways to approachthis. In terms of wellness amenities,
touchless technology was mentioned
often in interviews, including installationof no-touch facilities for building access,lifts, and bathrooms. Air-treatment
equipment is another important wellness
theme, including higher-grade air filters
and/or ultraviolet treatments in airconditioning units and lavatories. Carbon
dioxide sensors are also becoming
common.
Creating in-office experiences is anotherfocus. These might involve leisureoriented common lounge spaces,
biophilic design, end-of-trip facilities,
and landlord loyalty programmes. They
also include recreational amenities suchas games rooms or even rock climbing
walls—all space-intensive uses. As one
Hong Kong–based consultant said:“The office has become as much of anexperience as has retail, and the oldmaxim of 100 square feet per person has
clearly gone out of the window—most of
the schemes I’ve seen are talking about
200 to 300 square feet per person.”With technology and design evolving soquickly, the challenge for owners is notjust keeping up, but also ensuring thatfeatures adopted today will not become
redundant tomorrow. The ability to ensure
integration of different systems platforms
is therefore a priority. According to a
Hong Kong–based value-add investor:“I think in the next 12 to 18 months,
the issue will be: how to pull all this
together in the most efficient way from abuilding management, operations, anduser-experience point of view? Does
everybody need their own app, or are
there opportunities for collaboration
across different platforms?”

has made asset quality an increasingly
important theme. Successful CBD officebuildings will therefore need to be bothwell located and high quality (preferablywith an ESG angle) or well located andnot-so-high quality, but with potential to
upgrade.
The rest may have to re-strategise,especially as more companies relocate tosuburban locations (cities with large techsectors in particular). As one Singaporebased fund manager put it: “The good
will become better because owners will
spend capex on future-proofing aspects,
and the bad will become worse or cease
to exist.”

A World in Flex
Another issue that now tops occupiers’
agendas is flexible working. The conceptof flex arose originally in connection withcoworking spaces, which proliferated
around the region over this span of afew years. Today, though, the idea hasmorphed into a much broader model
focused on increasing tenant productivity
by leveraging flexibility.
From a workspace point of view, thismeans providing access to serviced
workspaces of various kinds, ranging
from traditional coworking facilities, tooverflow office space within a single
building, to networks of workspaces
across portfolios of buildings, or (for large
cities) near-to-home drop-in locations

scattered around a city. This distributed
working concept also plays to theidea of decentralisation, because as acompany’s allocation to flex goes up,
its use of traditional CBD headquarters
space tends to stagnate or decline.
Since its inception, the flex workspacebusiness model has been questionedby analysts, especially after the fall fromgrace of one industry-leading coworking
group in 2019. The pandemic has only
aggravated those doubts, with usage
plunging as workers shy away from useof shared resources. There is little doubt,
however, that the dynamics of the current
market strongly favour greater use offlex over the medium to long term, as it
becomes an increasingly mainstream
pathway for large companies to manage
their workforce and real estate needs.
In our survey (see exhibit 3-7), some56 percent of respondents stated thatflexible workspace was either importantor very important for their organisations.
Although that represents a slight decline
from last year’s figures, this is probably
more to do with pandemic-related issues
than with any industry retrenchment.
Future growth of the flex industry is
also tied to improved business models.
Landlords are now more open to theidea of assuming risk, either by forming
profit-sharing partnerships with operators
or by hiring them to manage in-house
resources for a fee.

Exhibit 3-7 How Important Currently Is Flexible Workspace for
Accommodating Employees of Your Organisation?			
2022

2021
24%

Very important

32%

Important25%

Slightly important18%

Not important

This drive to upgrade buildings as ameans to attract talent and add value

0%

5%

10%

15%

Source: Emerging Trends in Real Estate Asia Pacific surveys.

38

Emerging Trends in Real Estate® Asia Pacific 2022

20%

25%

30%

35%

In addition, management of flex facilities
has become streamlined through theevolution of purpose-built softwarethat can handle basic processes suchas space booking, access control,tech servicing, and payments, leaving
landlords to focus on their own specialty
of asset management.

Flex Leases Bypass Risk
Another idea associated with the conceptof flex is flexibility in leases. Historically,landlords have favoured long leases
because long-term cashflows areimportant considerations for banks that
finance asset purchases. But today’s
fast-changing business models, together
with uncertain headcount projections as
employers begin to position for a postpandemic rebound, often make tenants
resistant to agreeing to the type of longlease (such as the nine-year terms
common in Australia) that was the norm
before the pandemic.
That resistance is fortified by theknowledge that gateway markets today

have many big tenants holding large
amounts of long-leasehold space they
are trying (usually unsuccessfully) tosublet. In such an uncertain environment,risk aversion has contributed to thecurrent stagnancy of occupier markets.
As one broker commented about HongKong: “Not many occupiers are willingto sign a six-year lease in the CBD,
spending $10 million on the fitout, for fear
they may not need the office next month,
because what if there’s a lockdown andeveryone’s at home? So, most occupiersin Hong Kong have renewed or reduced
their existing space; hardly any havetaken up new space.”
The trend today, therefore, is towards
greater contractual flexibility. In practice,
this involves an option to decrease or
increase space leased by a company
on, say, six-months’ or one-year’s notice.
Such flex leasing is growing fast, and as
landlords see the tide turning, they havebegun to evolve their product offerings,
either by deploying prebuilt spaces fitted
out for one- to three-year periods or bycreating purpose-built spaces they either
lease out themselves or via a contract

with an operator. At the same time,
according to a Singapore-based analyst
tracking the flex space: “Allocation of
office portfolios from the occupier’s sidehas gone up, probably from 0 percent a
few years ago to 5 to 10 percent at thevery least—and that was pre-pandemic.”
While the upfront operating costs offlex leasing may be higher, optionality
brings with it a number of advantages
apart from just bypassing risk. For one,companies are able to move faster byusing flex-space operators to roll out
multiple offices in numerous locations.
Fitout costs are effectively eliminated,
and flex leases are also more digestible
to corporate managers in control offinances. According to the Singapore
analyst: “In times like now, when trying
to get signoff from CFOs for high capexof millions of dollars on an office that you
may not need, it’s much easier to do itwith a slightly higher opex [operating
expenditure] which you can pull thebrakes on six months out if you need to.”Emerging Trends in Real Estate® Asia Pacific 2022 39

Chapter 3: Property Type Outlook

Logistics
The surging popularity of logistics as an
asset class has been caused by a
confluence of factors: structural
undersupply of high-quality assets, theevolution of more sophisticated supply
chains, and the rapid growth in
e-commerce retailing that has been
recently catalysed by pandemic
lockdowns. At the same time, warehouses
also tick another box increasingly sought
by investors as tenant churn hikes
vacancy rates in other asset classes—
long-weighted average lease expiries(WALES) that ensure low vacancy rates.

Transaction volumes have boomed thisyear, with sales of industrial and logistics
properties in the first three quarters of2021 rising 43 percent year-on-year to
US$34.8 billion, according to RCA—more
than double the level of pre-pandemic
years. Regional yields continue tocompress, with the spread to officereaching 40 bps in the second quarter,
according to JLL, down from 80 bps in
the third quarter of 2020 and 120 bps
in 2018. In Australia and Seoul, spreads
have already reached parity at around 4
percent or even less for the most soughtafter assets.

Given ongoing cap rate compression,
investors question (as they have foryears) whether yields can shrink further.
According to a Hong Kong–based fundmanager, referring specifically to China:“I get a bit scared when I see US$12
billion being raised for sheds in China
when rents haven’t moved for a numberof years other than in very tight locations
around Shanghai. So in China, I’m a bit
concerned about logistics as an overall
concept. There will be obviously areas
where there’s a supply shortage andyou’ll be able to make money, but it’s not
across the board.”

Exhibit 3-8 Asia Pacific Logistics Yields and Rental Growth, 4Q 2020

Yields

Logistics centre yields (%)

10
9
8
7
6
5
4
3
2
1
0

8.5

5.3

5.3

Rent growth

5.3

5.3

5.4

2.1

2.1

Shanghai

Beijing

2.1

2.1

5.5

5.3
3.5

4.0 4.0

3.8

4.3
3.4

3.0

5.3

4.7

4.7

3.8

2.6

2.2

Shenzhen Guangzhou Chengdu Hong Kong
SAR

5.2

4.6

Tokyo

Seoul

Singapore Mumbai Bengaluru Melbourne Sydney

Auckland

4.5
3.8

4

3.0

2.7

2

2.0

2.0
0.7

1
0
-1

-0.9

-2
Source: Colliers International, Bloomberg, other.

40

Annual average rental growth rate (%, 2019–2024)

9.3

5
3

Yield spread over national 10-year bonds(percentage points)

Emerging Trends in Real Estate® Asia Pacific 2022

1.3

0.8

2.4

1.8

Demand Still Growing
At the same time, other indicators
suggest the sector has yet to peak. First,
cap rates in Europe (at around 4 percent
in the United Kingdom and 3.5 percent
in Germany) are lower than in all but thetightest Asia Pacific markets, implying
further scope to compress.

For all these reasons, there is still no
shortage of demand for new product.
In Australia, for example, more than
50 percent of assets scheduled forcompletion in 2021 were precommitted.

Achieving Scale

Second, existing warehouse stock inmany markets—in particular Japan andHong Kong—is dated. And as consumer
preferences in terms of type of productand speed of delivery evolve rapidly, therate of obsolescence is only accelerating,thereby generating more demand for new
facilities.

Seemingly endless appetite for logistics
facilities is having knock-on consequences.
For one, competition for assets is suchthat investors are increasingly straying
from gateway markets to deploy capitalwherever they can. This often works
better in the logistics sector than it doesfor other asset classes, because, as one
fund manager put it, “It’s always down to
the micro, the specific opportunity.”

Beyond that, demand for last-miledelivery is booming. Although both local
zoning rules and residents’ objections
have sometimes slowed plans to convert
space in underused city-centre retail
centres into logistics facilities, this is
another area set for widespread andlong-term growth.

In addition, as a way for the biggest
players to quickly achieve scale (andthereby serve the interests of their large
customers), there is increasing focus onplatform mergers, portfolio acquisitions,and individual asset purchases rather
than simply developing new stock.

Finally, the productivity benefits fromnew types of warehousing technology
are again acting as a catalyst for theobsolescence of aging infrastructure.
Automation and robotics tech is part ofthat, but the focus is moving increasingly
to artificial intelligence (AI) and data
analytics. According to a consultant
specialising in logistics technology,
warehouse operators are rapidly
leveraging these themes to maximise
operational efficiency via real-timemonitoring of warehouse inventory
movements.
“You have the picking, the packing, theloading, etc., and you have people androbots moving around, too,” he said. “Butif you can use analytics to enhance andoptimise different parts of that—even
the route journeys as to what to pick
and pack first—data will help inform
how these optimisations can be made.
And as you aggregate the numbers ofminutes saved across multiple warehouseand regions, you start to come up withsavings that can be valued in the tens of
millions or more.”

Achieving their targeted size is otherwise
impossible, said one Shanghai-based
investor, so instead “they are diversifying
their business model. When they have acompleted project, they want to list it [in aREIT] or put it in a core fund and manage
it. But then they also have the ability toacquire stabilised projects that otherpeople have built or are building, insteadof always developing, which is very hard
to do.”
Another factor contributing to supply
shortages and increased competitionis the fact that Asia Pacific markets are
dominated by very large developers/
operators. According to a Singaporebased executive at one such operator: “A
lot of people in the Asia Pacific—just like
us—are feeding themselves, so you don’t
have, as in Europe, the small merchantdevelopers selling a few buildings ayear. That means there is less product,
percentage-wise, available in the Asian
context than in Europe, because we justput it from a development structure into a
REIT structure.”

Data Centres
Data centres continue to be a popularsubsector of the logistics market due tohuge bandwidth demand growth in theregion, with internet exchange traffic in
the Asia Pacific up 40 percent in the first
three quarters of 2021 alone, according
to data-centre developer Equinix. Thisis again caused partly by pandemicrelated issues such as work-from-homevideo conferencing and e-commerce
shopping. But demand is also boosted
by bandwidth requirements for 5G dataservices, the growing popularity of cloudbased services, and the impact of rapidly
evolving data localisation laws.
Data-centre investment in the Asia Pacificreached US$1.8 billion in the first halfof 2021, according to CBRE, or about
80 percent of 2020 turnover, most ofwhich was directed to projects in China.
Investors tend to develop rather than buy,
given the general shortage of stabilised
facilities available for purchase.
Competition to place capital in suchprojects has become intense. According
to one experienced data-centre investor,“I suspect in our next fund cycle wewill deemphasise [data centres], notjust because our programmes will be inplace and we’ll be working on those, but
because a lot of capital is coming in anddoing some stupid things, and that will
[have to] run its course.”
The main reason for the current popularityof data centres among investors is that
rents tend to be significantly higher thanfor vanilla-type real estate investments
occupying the same footprint. Stabilised
yields are therefore generally much better
than yields on cost.
A growing niche within the data-centre
space is demand for smaller facilities(a “last-mile” approach, as one investor
described it) that cater to discrete areas
within a given urban area. According to
one investor in Japan: “I think a time iscoming when individual floors of officebuildings will become data centres—
there’s a need for [facilities] that don’t
have huge capacity and just focus on thecore area [of a city].”

Emerging Trends in Real Estate® Asia Pacific 2022 41

Chapter 3: Property Type Outlook

Investment funds are no longer deterredby the operational intensity of data-centre
projects, and many of the larger funds
will retain internal specialists (or possibly
create an operating team outside thefund) to manage their centres.

Key Logistics Markets• Australia and China were the most active markets in the third quarter of2021, with significant asset sales by foreign investors.
• Across the Asia Pacific, Australia has the best logistics networks interms of grade-A per capita space, according to Colliers, and together
with East China has the largest base of modern logistics stock in theregion.

At the same time, the reality is that these
specialist undertakings are not for the
faint of heart. Given the narrow base of
potential tenants, data-centre lease-up
periods can be multiyear exercises. In
addition, regulatory and operationalrisks are not insignificant. Large projects
usually require a partnership with alocal telecoms or co-location operator,
not simply to operate the facility andensure that space will be leased, but also
because local regulations may requireit, and access to the huge amounts ofpower consumed in such facilities may
not be available without it.

• Japan is not only short of space in per capita terms, but with just 10
percent of its stock meeting modern standards, most facilities are outof date. At the same time, however, rents and capital values are among
the highest in the region. Investors are targeting value-add strategies forolder warehouses, looking to demolish and rebuild, often with huge (e.g.,
400,000-square-metre) multifloor facilities. Given rising tenant demand
and the huge size and cost of such projects, Japan is an ideal market
for institutional investors with deep pockets and a long-term perspective.
Projects are always tightly bid, despite apparently low yields of 4 percent
or less.
• Seoul continues to suffer from supply shortages and has been amagnet for logistics investment (much of it foreign-invested) for several
years. Growth is rapid—if all facilities currently planned or underway arecompleted, the city will see a 26 percent increase in stock from today’slevels, reaching 8.6 million square metres of space.

Finally, and much more so than price,
reliability of power supply can beproblematic in Asia Pacific markets, given
its critical importance operationally anda general shortage of power utilities thatcan provide it. This is one reason Japan
has become a focal point for data-centre
construction despite its high costs.

• India has the lowest warehouse rents in the Asia Pacific at under US$3
per square metre per month. Given the acute shortage of modern
facilities, the potential is both vast and long lasting, as e-commerce
penetration rates (currently at just 5 percent) continue to grow. The
big international operators are actively building large, state-of-the-art
automated facilities.

RetailThe explosive growth of e-commerce
retailing in the wake of widespreadpandemic lockdowns has created apervasive sense of negativity towards
conventional retail assets across theregion. Footfall was in decline even
before COVID-19 arrived, but the ensuingplunge in consumer sales—and, in its
wake, retail asset values—convinced
many investors that the event marked yet
another secular shift, and that the daysof shop-based retail were numbered. As
a result, with many investors seeking todivest their retail holdings, yield spreads
over the cost of debt for regional retailproperties has moved out by some 50
bps over equivalent spreads for officeassets, according to JLL.
At the right price, however, any asset
becomes attractive, and the sector
seems to have hit that point around the42

middle of 2021, with third-quarter retailtransaction volumes spiking 36 percent
year-on-year to US$7.2 billion, according
to RCA, roughly on a par with levels from2015–2019.
To some extent, this reflects sales offacilities in subsectors that have thrived
specifically because of the pandemic.
Nondiscretionary retail, convenience
stores, and suburban retailers serving
areas with large residential catchments—
and therefore a captive work-fromhome audience—have seen cap rates
compress, therefore, as investors pursue
revenue growth.
But there is no doubt that the reboundis mostly due to sales of now-cheaper
conventional assets. Some markets havebeen hit harder than others. Hong Kong,

Emerging Trends in Real Estate® Asia Pacific 2022

for instance, where sky-high rents had
been backstopped by a stream of tourists
arriving from Mainland China, has seen a
massive decline in revenue due to borderclosures. Overall rents were down 30 to50 percent in mid-2021, according to
Savills, with those in popular shopping
areas down even further, to levels last
seen in 2003, when the retail sector reliedmostly on spending by local consumers.
Australian retailers have also suffered. Its
multilevel CBD shopping centres, which
had been downtrending for years even
before pandemic lockdowns, are one
example. Indeed, multilevel shopping
centres have been in the eye of thestorm across the region, especially on
their upper floors, where rents remain
too high to justify depleted footfall. Somecore CBD retail assets are now changing

hands, including one high-profile
shopping centre in Sydney that was soldin early November 2021.
At the other end of the scale, consumers
in China turned en masse to online
retailing years ago, forcing physicalretailers to adapt to survive. Today,
although oversupply remains a problem,the sector has become a bifurcated andincreasingly specialist market that now
features some of the most sophisticatedshopping facilities in the world.
Exhibit 3-9 Top 10 Countries in
Retail E-commerce Sales Share,
2021
52.1%

China
US

19.0%

UK

4.8%

Japan

3.0%

South
Korea

2.5%

Germany

2.1%

France

1.6%

India

1.4%

Canada1.3%

Brazil0.8%

Source: eMarketer.

According to one Shanghai-based
investor: “Retail these days has become
more concentrated, with just a few
good operators. And, especially withnew supply coming in all locations, youhave to have the expertise, operational
know-how, and connections withtenants to make it work. In future, I think
the expertise will be concentrated ina handful of good operators, and theothers will just die—they’ll maybe doconversions, or just lower the rent andaccept lower returns.”
This comment points to a likely pathfor the retail sector in other markets,
too, and helps explain why, as values
and cap rates move out to a point
where repurposing becomes realistic
economically, a significant minority ofinvestors see the current downward
trend as a rare opportunity to buy andreposition underperforming but welllocated facilities. Value-add players withthe right expertise are therefore jumping
on downtrodden retail assets with an eye
to reinventing them. Often, too, they are
doing so with conviction, as evidenced
by the US$1.4 billion purchase by a large
North American asset manager of aportfolio of malls in five Chinese cities in
mid-2021.
In Hong Kong, according to one former
developer, “My sense is that we’regoing to revert to a ground-floor model
because of accessibility and visibility
and all the rest. What happens on thefirst and second floors will be studios,workspaces, salons, clinics, schools,
and so. I think we’re going to see virtually
everything and anything allowed at firstand second-floor level, where a masterlandlord may take the whole floor andmanage the 20 or 30 actors involved increating experiences there.”In Australia, which even pre-pandemic
suffered from an oversupply of outof-town malls, investors are creating
mixed-use communities, building
residential towers in formerly sprawling
car parks, and transforming the interiors
to a wide variety of new uses, often with acommunity focus.

Follow the Data
Technology, and in particular big data,
have become important componentsof retailing strategies globally. Adoption
across Asia Pacific markets varies,
however, as does landlords’ grasp offunctionality.
According to one consultant: “If thetenants succeed, then the real estatecompany succeeds. So in some ways
landlords should subsidise investment
needed to create this growth, even if
it’s as simple as store entrance trafficcounting cameras to help brands
measure sales conversion rates—
because you can’t improve something
you don’t measure.”

In particular, data tracking of consumer
spending patterns has become
increasingly sophisticated. While theuse of anonymised credit card data to
analyse spending patterns by location or
demographic is not allowed in most Asia
Pacific markets (apart from Australia),
anonymised mobile phone data has
become a commonly used method
to track consumer demographics,
movements, and visiting times in malls,
allowing retailers to compile demographic
profiles of their customers in order totarget sales discounts at individual typesof shoppers.
China’s recent regulatory initiatives
targeting data privacy (relating
especially to technology companies)
aim to regulate tracking of individually
identifiable consumers, a practicepreviously widespread in China thatwas used by brands to create hypertargeted marketing campaigns. On its
face, China’s new Personal Information
Protection Law (effective in November2021) specifically states that it has no
application to anonymised data, meaningthat retailers can continue to use it.
However, the ultimate outcome anddirection of the government’s privacy
protection initiative are hard to predict.

Evolving Operating Models
Although online shopping and offline
shopping were once seen as very
different domains, recognition is growingthat they are really two sides of thesame coin. Offline retailers are therefore
moving to embrace omnichannel
strategies more effectively. In China,
many shopping centres have alreadycompleted this transition, and operate
effectively and profitably. Developers
elsewhere (Singapore, in particular) havebegun experimenting with concept-driven
facilities that look to tap the youthfulzeitgeist of the modern consumer.
In addition, landlords and retailers are
more likely today to work in collaborative
ways, opening up opportunities for
new business models. According to aprominent retail developer in China, “Do
landlords think of themselves as partners

Emerging Trends in Real Estate® Asia Pacific 2022 43

Chapter 3: Property Type Outlookof tenants? We certainly do, and that’s
why we collaborate—so we can mutually
serve our customers. I know many otherlandlords who don’t see it that way,
whether they admit it or not.”The idea is that each party should be
paid according to what they contributeto the partnership. “If you’re contributing
a square meter of property,” said
the developer, “you should be paid
accordingly; if you’re contributing tobringing customers to our tenants, you
should also be paid accordingly; and if
you’re contributing towards sales, you
should have a slice of the sales.”One of the consequences of theincreasing operational integration oflandlords and retailers, who thereby
share to a greater degree both the risks
and rewards of the retailer’s business,
is a migration towards a turnover rent
model, usually in combination with aminimum base rent. These are alreadybecoming more common in certain retailsubsectors, and interviewees in Australia
reported that online turnover clauses
were also finding their way into retaillease structures.
However, turnover rents becomecomplicated in an omnichannel
environment due to difficulties indetermining the extent to which an online
sale is attributable to an offline store.
Sales involving food and beverage orleisure may be easier to assess on aturnover basis, but otherwise—andparticularly when it comes to “click andcollect” sales—no perfected model exists
for evaluating the value provided by any
given store in any given location in thecontext of online transactions.

Residential
Rising inflation is usually bullish for homevalues, so it comes as little surprise thatstrong recent increases in consumer
prices (and, more so, for base metals
and other input costs) have acted as acatalyst for housing prices in many Asia
Pacific markets, adding to the appeal

44

of an asset class already favoured byinvestors as a defensive play.
The extent of some of the increases
has raised eyebrows, though. In
Australia, residential prices 21.6 in theyear to October according to analysts
CoreLogic, while condo values in central
Tokyo increased 11.4 percent year-onyear as of July, according to the Real
Estate Economic Institute.
In India, meanwhile, prices are also on
the move, despite a sustained upheavalof the industry that has resulted in many
developer bankruptcies. According to
one Delhi-based consultant: “Across theboard, residential prices have gone up
at least 8 to 10 percent throughout thecountry, regardless if the market has
performed or not, driven by developers[trying] to keep pace with increased costs
and inputs.”
With deal volume of US$8.5 billion in
2020, according to RCA, Japan is the
only mature multifamily market in theregion. But at a little over 20 percent ofoverall real estate investment volume,the sector is still small compared withthat in the United States (at 36 percent).
Still, regional appetite for build-to-rent
housing has grown appreciably in 2021,
continuing the momentum noted in lastyear’s report.
The perennial problem for regional
multifamily markets has been that the
Asia Pacific’s high home prices makecap rates too low to attract private-equity
investors.
Recently, however, the landscape insome markets has begun to shift in waysthat have made the build-to-rent thesis
more appetizing to institutional funds.
In particular, while returns may still be
thin, they remain significantly higher
than yields for most sovereign bonds. In
addition, they offer a measure of cash
flow stability that approximates that of acorporate bond, making them especiallyappealing to managers with long
investment horizons.

Emerging Trends in Real Estate® Asia Pacific 2022

In Japan, cap rates as low as 3 percent
have therefore proved acceptable toinstitutional buyers, especially when
paired with Japan’s ultra-low-costborrowing (i.e., 1 percent or under),levered at 60 percent–plus. Investors
also expect to eke out incremental gains
in other ways—be it yield compression,
rental increases, value-add of various
kinds, or even conversion to co-living
facilities.
With competition tight and producthard to source, investors have turned toforward purchases as a way to quickly
build platforms, increase returns, andaddress supply shortages. In theprocess, they are often assuming leaseup risk as a means to boost income.
While this has become a favoured playfor foreign funds in Japan, however,
the risk/return prospects have beenquestioned. According to one Tokyobased fund manager, aggressive
underwriting of both pricing and rents
leave little margin for error. “One of
the big issues for residential is [high]tenant turnover,” he said. “We’re hearing
they’re having trouble finding tenants—
downtime can be well over a year, andthen you have your cost to get tenants
in. So if you’re buying these forward
commitments, and you underwrote thisstuff a year and a half ago at, say, 3 to
3.5 [percent cap rate], and your rents are
now down 20 percent and you’re also
having trouble leasing it up, you could
easily be in the 2.0, 2.5 percent range
very fast, and if you’re borrowing at 70
percent [LTV] you’d be in negative net
cash flow territory relatively quickly.”
One reason for rising leasing risk is thattenant preferences are evolving. Withpeople now more likely to spend time
at home, build quality is increasingly
important, as is apartment size, withmany tenants looking for a bigger
footprint or an extra room to use as ahome office.
This is probably the main reason
behind the reversal last year of thelong-established trend of positive net

As one local investor observed: “Everyquarter, more people are now moving
out [of Tokyo], and that to me is a very
concerning demographic trend, much
more so than ageing populations. People
are figuring they don’t need to live inCentral Tokyo—they can be outside inother suburban areas, live in a larger
place, and pay less rent.”
For now, the extent of this U-turn in
net migration is relatively small, but if it
begins to affect the wider supply/demand
dynamic for housing, there could be
wider repercussions for the profitabilityof the multifamily sector, which mostly
involves properties in central Tokyo. As aside effect, investors are also becoming
increasingly willing to consider locations
further away from Tokyo’s central wards
in their search for investable residential
projects.
In China, the build-to-rent sector has
the tailwind of government support—asignificant benefit given the currently
fast-changing policy environment.
Certainly, an institutional build-to-rent
market could never exist in the Mainland
in the absence of such support, givenhigh prices, low rents, and an historical(and, for developers, very profitable)
preference for private sales.
In recent years, the government
became convinced of the need for an
institutionalised rental housing market
as a means to address widening wealthdisparities that are hindering the free flowof labour migrating to the larger cities.
Other reasons why China has growing
demand for an institutionalised rental
housing market include the following:

Exhibit 3-10 Japan Apartment Investment Volumes, 1H 2021
Volumes JPY cross border

Volumes JPY domestic¥1,000
¥900
¥800
¥700
Billionmigration into Tokyo—a decades-longprocess of urbanisation that saw more
people moving to the city than leaving
it. Lifestyle changes brought about by
COVID are now causing an exodus tocheaper suburban areas in neighbouring
prefectures such as Kanagawa andChiba. For the same reason, secondary
cities such as Nagoya and Fukuoka arealso gaining popularity.

¥600
¥500
¥400
¥300
¥200
¥100
¥0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 H1
2021

Source: Real Capital Analytics.

• A population that is increasingly
mobile and more likely to change
jobs. Young people are therefore lessinclined to buy property.
• At the same time, China’s younger
demographic is used to a higher
standard of living and is more willing
and able to pay higher rents than theirparents.
As usual in China, little time has been
wasted moving from concept to reality.
To incentivise developers and makeup for the shortfall in yields, authorities
offer land at deeply discounted prices(anecdotally, one-third the price offor-sale residential land) and also work
behind the scenes to create unofficial
quid pro quos for developers. Various
business models have sprung up andindustry consolidation is ongoing as
failed initiatives are weeded out.
The scale of the initiative is massive. In
Beijing, according to one locally based
interviewee, planning regulations require
33 percent of new supply to be in theform of rental housing; in Shenzhen,
the figure is 50 percent. Conversion ofolder properties for residential rental
purposes has been prioritised, and a newplanning code introduced in Shanghai(and, soon, Beijing) creates a dedicatedzoning regime solely for rental residential
properties.
In its 14th Five-Year Plan, issued in
2021, the government set a mandatefor 10 percent of new residential land
supply nationwide to be reserved forconstruction of rental homes.
While the vast majority of supply forthis new housing class will be met bydomestic developers, foreign investors
have also been active. Even with land
pricing discounts, however, yields are
low for a market with China’s risk profile.
One consultant suggested that potential
cap rates for Chinese multifamily assets
might be around 3.5 percent, or roughly
on a par with Japan. At the same time,
however, cost of capital is significantly
higher in China, and the government’s
recent announcement that urban rent
increases would be capped at 5 percent
annually has torpedoed expectations forrental growth.

Emerging Trends in Real Estate® Asia Pacific 2022 45

Chapter 3: Property Type Outlook

As a result, development seems a more
likely pathway for foreign investors, withan internal rate of return (IRR) of 8 to 10
percent and a potential exit via China’s
newly formed REIT industry, which
may soon be expanded to allow rental
housing REITs. Even at these levels,
however, foreign investors may find better
opportunities in the co-living sector,
which is less focused on the mass market
and plays to their strength of operational
expertise.
In Australia, meanwhile, the multifamily
sector remains in its infancy, but it
is drawing increasing attention due
to rapidly rising home prices and an
expanding demographic of young
renters. Currently, billions of dollars
in investment capital—mostly foreignsourced—is targeting Australian build-torent projects, with JLL projecting it could
become the third-biggest asset class inthe country within three years.
Again, however, low yields are a problem.
One interviewee mentioned “unheardof” cap rates of 2.0 to 2.5 percent, while
an unfavourable tax regime further
undermines potential profitability.
Upcoming policy changes may help
address the tax leakage issue, but
structural problems remain. First,
according to one analyst, cost of capitalis high given that local banks will usually
not lend to build-to-rent projects, leaving
investors to seek funding via nonbank or
offshore lenders.
In addition, according to a locally
based residential developer, demand isquestionable. “Demand is not from users,
it’s from capital,” he said. “If you look at
the build-to-rent that’s been delivered
today—and there hasn’t been much—buildings completed for nearly a year
are only 60 to 65 percent occupied. But
if I built 200 apartments in an inner-city[area] and sold them to a combinationof investors and owner occupiers, 95
percent of them will have an occupantin there within two weeks of completion,
maybe a month.”46

One problem for the institutional market
in Australia is that there are so many
privately owned properties available
for rent whose owners are flexible tochanging market conditions, unlike
build-to-rent operators who are reluctant
to reduce rents significantly because it
requires a reset to valuations.
Another problem is that the younger
demographic in Australia is not keen
on changing location. According to
the developer: “I think the mobility of
the workforce in Australia is one of thebiggest headwinds for the build-to-rent
market. If you have a 35-year-old living
in Sydney as a middle manager, and you
say, ‘OK, I have a promotion opportunity,
but you have to go to Melbourne andyou’ll get an extra 20 percent uplift inyour wages,’ they won’t go, because they
have a whole social scene around andthey won’t move. In America, they’re off
like a shot.”
Beyond that, the economics of multifamily
investing in Australia just don’t stack up.
“The capital that’s been chasing it is not
Australian capital—it can’t, because on aweighted-average cost basis it’s alreadytoo expensive to play. So all the players[in Australia] are bringing foreign capital
to invest and just facilitating it, getting
development fees and what have you.
The other thing is that [domestic capital]cannot compete buying a block of land
like-for-like, because if I’m competing
to buy 200 apartments build-to-sell andyou’re competing to buy the same sitebuild-to-rent, then I can outbid you.”In the absence of government
concessions, therefore, the developerconsidered the market unworkable formultifamily investment unless individual
investors run out of powder and thenumber of private properties available forrent on the market begins to fall.

HotelsTravel bans continue to hit the hotel
sector hard across the Asia Pacific.
Although Singapore’s new VaccinatedEmerging Trends in Real Estate® Asia Pacific 2022

Travel Lane scheme offers accessto passengers travelling from somecountries, most jurisdictions allow little tono unquarantined international travel for
nonresidents/noncitizens, with some also
enforcing domestic travel restrictions.
While many regional governments aremaking preparations to reopen borders,at least partially, any significant uptick ininternational passenger movements still
seems remote.
The shortfall in tourist and business travel
revenues caused by these restrictions
has been disastrous for many hotels. As
revenues dry up, the pain has become
intense for an industry that, in the words
of one investor, “is already capex hungry,
so you constantly need to reinvest in thebuilding—it’s not something you can shutthe doors and forget about, you still havecosts you’re going to incur.”
In addition, while many larger hotel
chains are owned by deep-pocketed
institutions that are better placed to
wait out the storm, smaller assets or
chains—especially in the resort/tourist
subsectors—are often owned by privateinterests that lack financial staying power.
As a result, interviewees in last year’s
report had expected the hospitality
sector to become a prime candidate for
distress sales. In practice, however, andapart from a smattering of forced sales
regionally, the distress story in hospitality
has yet to materialise. Asia Pacific hoteltransactions in the third quarter of 2021
were down 19 percent at US$2 billion,
according to RCA, the lowest thirdquarter figure in the last decade.
This counterintuitive lack of forced
selling is down to several factors. Firstand foremost, as outlined in chapter 1,banks across the region have shown little
inclination to trigger defaults.
At the same time, the weight of capital
looking to secure assets that would
normally not be for sale in the first placecreates competition that has lifted
pricing to levels that no longer qualify
as distressed. In Australia, for example,

which translates to about HK$6,000 to$9,000 [i.e., about US$760 to US$1,160]
per month. You don’t get much in theprivate rented residential space for that,
so people are renting a nice hotel room
for six months and treating themselves.
And that’s keeping the lights on.”Exhibit 3-11 Change in International Visitor Arrivals by Region as ofAugust 2021 Compared with 2019

In

do

So

-88%

ne

ut

sia

h

Ko

Ph
re
a

Ho

Ne

w

ilip

pi

ne

Ze

s

ala

nd

Au

Ta
iw

str

Si

an

ng

ali

ng

a

ap

or
e

Ja

Ko

ng

pa

n

Th

SA

R

ail

an

d

Whether this is enough to keep thewolves from the door, though, remains
to be seen. Many investors continue tobelieve that—once again—secular forces
have permanently changed the dynamics
of the sector.

-90%
-92%

-92%

-94%

-94%

-96%
-98%
-100%

-98%
-99%

-99%

-99%

-99%

-99%

-99%
-100%

-102%UNWTO.
Source:which is so far the lone Asia Pacificmarket to have seen significant hoteltransactions, selling prices have been at
or above pre-COVID levels.
In Southeast Asia, meanwhile, whereassets tend to be owned by highnet-worth families, buyers haveunderestimated the tenacity of current
owners. Transactions in the first half of
mid-2021 amounted to about just 1,500
rooms, according to one interviewee, aninsignificant number.
As one Australia-based hotel investor
said: “We’ve seen this in previous severe
cycles, too, such as the Asian financial
crisis or SARS, when everyone thought
there was going to be a wave of distresssales. But there’s often a lot of faith
involved with owning hotels, and they’llcling to them at all costs.”

Filling Rooms
In addition, many hotel operators havefound a number of ways to fill rooms evenin the absence of international travel.
First, there has been a pivot to domestic
markets, tapping local demand from

captive domestic audiences. As one
interviewee in Manila observed: “Wejust went out of town after a long time
here, and I was quite surprised that thisprivate resort in Patang was actually attheir highest occupancy since the startof this year. So there are some hospitality
resorts right now that are performing very
well.”
Second, at least in international gateway
cities, hotels have been able to corner
the lucrative market for quarantined
travellers. According to a Hong Kong–based private-equity investor: “We’relooking to buy a hotel in Sydney that’s
operating at a much higher margin than itever has historically because it’s currently
a COVID hotel, so they’re not changing
bed sheets or running the spa, all thatlower-margin stuff—they’re just sellingrooms, and the rooms are all full.”A final strategy is simply to lower rates
to rock-bottom levels and market rooms
as serviced apartments. According toanother fund manager in Hong Kong: “Ifyou look at average daily rates for two- or
three-star hotels [in Hong Kong], thatwould be maybe HK$1,000. Those have
now plunged to HK$200 or HK$300,

According to one: “Bizarrely, the market
is on fire. Hotels are trading at pre-COVID
levels, with no account of this black holein revenues and negative NOI. And I
don’t understand that—what’s happeningis that yields are actually tightening on
hotels relative to real NOI. At the sametime, demand levels aren’t coming backfor quite some time. The MICE [meetings,
incentives, conferences, and exhibitions]market isn’t coming back soon. And if
you have a city-centre business hotel
and are looking at local demand, yourmax occupancy rate is going to be 50
percent, because you’ve lost half yourmarket.”Bank Forbearance Ending
Otherwise, there are signs that bankpatience is wearing thin. According
to one regional hotel executive: “Bankforbearance has been a big factor in
why we haven’t seen many transactions,but now they’re running out of patience.
Governments have been backstoppingbanks, but at some point there needs tobe a break in the logjam.”Well-capitalised owners will not beaffected, but smaller groups, orcompanies for whom hotels are noncore
assets and who may need to raise cash
to support core businesses, are likely to
be a source of future deals.
“We believe that early next year thevortex will come together,” said theexecutive. “Lenders and governments will

Emerging Trends in Real Estate® Asia Pacific 2022 47

Chapter 3: Property Type Outlook

realise that paralysis is not a sustainableeconomic model. They have to dosomething, and kicking the can down
the road is not an answer, becauseeven when travel restarts, it won’t be likeflicking a switch—it will take years torecover, years to retrain, and years to pay
down the mountain of debt.”
One suggested model is a sale-withbuyback option, given that many
private-equity players may be interested
in cutting deals, but not necessarily inholding assets long-term. And because
the resort subsector is likely to be thefirst to rebound given that urban hotels
will be a harder sell for business travel,
resort owners may feel that they havemore bargaining power to negotiate withprivate-equity investors to either partner
or sell.
The discussions, according to the
executive, will revolve around how assets
should be valued. “In Asia,” he said,“owners often look at land valuations
as the main source of [asset] value. But
private-equity buyers couldn’t care lessabout that. They’re looking purely atbuying at a cap rate multiple and thengetting out at a different cap rate.”
Beyond that, many private-equity
investors looking for distress deals havelittle room for flexibility. According to aregional hotel consultant: “Working ontransactions over the past 18 months,
what we’ve seen is that it’s difficultfor private equity to underwrite deals
because their expectation in a crisis is toget 20 to 25 percent IRRs. And there are
two moving parts to get that: either theproperty has to be priced extremely low,or they have to be able to put debt on it,
and there’s not a wide availability of new
debt for these types of transactions. So
people that can’t put debt on can’t get
the IRR thresholds. And the owner justsays: ‘I might give a 20 percent discountbut not 50 percent.’ So private equity is
not getting deals done.”

48

Exhibit 3-12 What Are Your Business Travel Plans Once Regional
Travel Restrictions Are Lifted?
2022

2021

Will travel at
pre-COVID level

18%

Will travel slightly
less than pre-COVID

37%

Will travel some, but only
for priority matters(e.g., live deals/due diligence)
Not planning to travel;
will have virtual meetings only
0%

43%
3%

10%

20%

30%

40%

50%

60%

Source: Emerging Trends in Real Estate Asia Pacific surveys.

Japan Targeted
In the meantime, growing numbers ofinvestors with less ambitious return
expectations are looking to tap domestic
travel trends—“revenge travel,” as one
interviewee put it—in the big three Asia
Pacific economies: China, Japan, andAustralia. With prices in Australia deemed
too high (partly due to high levels of
institutional ownership) and the Chinese
market already fully supplied, the focus
has fallen on Japan, with investors
looking to invest at a discount of somekind and then ride the post-recovery
wave.
According to a fund manager in
Singapore: “Pre-COVID, the Japanese
were seeing a very steep curve in visitor
arrivals, and what with its infrastructure
and other general offerings, we were verybullish long-term on Japan hospitality.
It also has the benefit of a big domestic
population, so that gives it some levelof cushion, but it is missing out on that
inbound market. We’re launching a
new Japan hotel fund, probably a club,that will be targeting hotels in Japan

Emerging Trends in Real Estate® Asia Pacific 2022

looking for more of that value-add typeproposition where owners are maybe alittle deprived of capital.”
Japan is also interesting for investors whowant to arbitrage an imbalance of stock
serving different subsectors. According
to one local investor, “Performance has
been dramatically different between
luxury hotels and budget hotels. There’s
been an alarming increase in [the numberof] budget hotels, which will make itnearly impossible for their revenue
structures to recover. But we believe
this presents a business opportunity in
2022 and later for repositioning assets,for example, as for-sale condominiums.
We still expect very favourable financing
situations to continue, but we have toanalyse assets individually [to assess
their merits].”

Interviewees
Actis
Brian Chinappi

Daiichi Properties
Charmaine Uy

KKRBryan Southergill

PDB Properties Inc.
Steven Tambunting

Allianz Real Estate
Rushabh Desai

Daiwa House Industry
Tetsuo Suzuki

Lamudi Philippines
Kenneth Stern

PGIM
Morgan Laughlin
Benett TheseiraAngelo, Gordon Asia
Zoe Zuo

Diamond Realty Management Inc.
Ryuta Takeuchi

LaSalle Investment Management
Selena Shi

AqualandJohn Carfi

ESCON Japan
Takatoshi Ito

Leechiu Property Consultants
Tam Angel

AR Capital Advisors
Steven Bass

ESR
Michael De-Jong Douglas

Lendlease
Andrew Gauci

ARCH Capital
Eric Manuel

FIT Investment Corporation
Richard Zen

Link REIT
Chris Brooke

ArthaLand Corporation
Sheryll Veranno

Frabelle Group of Companies
Francesca Tiu-Laurel

Lobien Realty Group
Sheila Lobien

Asia United Bank
Leonides Intalan

GenReal Property Advisers
Anckur Srivasttava

LOGOS
Mehul ShahAXA IM Real Assets
Laurent Jacquemin

Great Wall Pan Asia Holdings
LimitedSerena Zheng

Manulife
Kenny Lam

BentallGreenOak
Dan Klebes
BlackRock
Chris Handte
Blackstone
Nina James
Frank Zhao

Wellworth Properties
Harly Geraldine Pow
Hines
Jon Tanaka
Hon Kwok Land Investment
James Wong

Menarco Development Corporation
Maria Cristina Samson
Mitsubishi Corp.–UBS Realty Inc.
Katsuji Okamoto
Mitsubishi Jisho Investment
Advisors
Toshiyuki Arai
Eriko Kato
Koichi Ueno

Brookfield Asset Management
Stuart Mercier

Huafa
Ken Zheng

Capbridge Investors
Ken Fridley

Hulic
Yoshito Nishikawa

Mitsubishi UFJ Trust and Banking
Corporation
Hiroyuki Seki

CBRE
Henry Chin
Sid Dhawan
Takashi Tsuji

IDERA Capital Management Ltd.
Harumi Kadono

Mitsui Fudosan Investment Advisors
Shuji Tomikawa

Invesco Global Real Estate Asia
Pacific Inc.
Ryukichi Nakata

Morgan Stanley
Susan Sun

Centurion Corporation Limited
Kong Chee Min
China Merchants Capital
Vincent Yu

Japan Post Bank
Toshiyuki Tanaka

China Oversea Estate
Linlin Wang

JLL
Janlo de los Reyes
Matt Duncan

CistriPeter Holland

KaiLong GroupIvan Ho

Colliers International
Richard Raymundo

KENEDIX
Keisuke Sato
Takahiro Uchida

CRE REIT Advisers
Tsuyoshi Ito
CSI
Andrew Taylor
Cushman & Wakefield
Claro Cordero Jr.

KENEDIX Real Estate FundManagement Inc.
Masahiko Tajima
Keppel Land
Kevin Zhou

Mori Building
Hiroo Mori
Nomura Real Estate Solutions
Eiji Enomoto
NuveenLouise Kavanaugh
Jing Zhou
Ooedo Onsen Reit Investment
Corporation
Fuminori Imanishi
Orca Capital
Ariel Shtarkman
Pacifica Capital
Seth Sulkin
PAG Investment Management
Naoya Nakata

Philippine Constructors Association
Wilfredo Decena
Phoenix Investors
Wilfred Ma
Powerlong Real Estate Holdings Ltd.
Peggy Jin
PRIME Philippines
Jettson Yu
Professional Property Services
Nicholas Brooke
Pronove Tai & Associates
Monique Pronove
Quisumbing Torres
Alain Charles Veloso
Rafi Properties
Baillie Yip
Savills China
James Macdonald
Savills Malaysia
Dougie Chrichton
SC Capital Partners Group
Andrew Heithersay
Michael Lane
Schroder Pamfleet
Andrew Moore
Shenzhen City Investment
Zhiping Li
Shui On LandDavid Wong
Starr International Investment
Advisors
Alison Cooke
TopChain Group
XueJia Liu
Unionbank
Henry Aguda
Vanke
Coral Gao
AUPUP Electronic Commerce Co.,Ltd
Lingxiao Peng
Yuexiu REIT
Deliang Lin

Sponsoring Organisations

PwC’s real estate practice assists real estate investment
advisers, real estate investment trusts, public and private realestate investors, corporations, and real estate management
funds in developing real estate strategies; evaluating
acquisitions and dispositions; and appraising and valuing realestate. Its global network of dedicated real estate professionals
enables it to assemble for its clients the most qualified andappropriate team of specialists in the areas of capital markets,
systems analysis and implementation, research, accounting,and tax.

Global Real Estate Leadership Team
Craig Hughes
Global Real Estate Leader
London, United Kingdom

Brian Arnold
Indonesia Real Estate Leader
Jakarta, Indonesia

Jeroen Elink Schuurman
Global Real Estate Tax Leader
The Netherlands

Jennifer Chang
Malaysia Real Estate Leader
Kuala Lumpur, Malaysia

Stuart Porter
Asia Pacific Real Estate Tax Leader
Japan

Hiroshi Takagi and Hideo Ohta
Japan Real Estate Leaders
Tokyo, Japan

Paul Walters
Asia Pacific Real Estate Assurance
LeaderHong Kong SAR, China

Taejin Park
Korea Real Estate Leader
Seoul, Korea

Jim ChenMainland China Real Estate Leader
China

Chee Keong Yeow
Singapore Real Estate & Hospitality
LeaderSingapore

Raphael Chu
Hong Kong Real Estate Leader
Hong Kong SAR, China

Nguyen Thanh Trung
Vietnam Real Estate Leader
Ho Chi Minh City, Vietnam

Michael Ma
Mainland China Real Estate Tax Partner
China

Jason Liu
Taiwan Real Estate Leader
Taipei, Taiwan

David Kan
Hong Kong Real Estate Tax Leader
Hong Kong SAR, China

www.pwc.com

Kanus Yue
Mainland China and Hong Kong Real
Estate Risk Assurance Leader
China
Jane Reilly and Josh Cardwell
Australia Real Estate Leaders
Sydney, Australia

The Urban Land Institute is a global, member-driven
organisation comprising more than 45,000 real estate andurban development professionals dedicated to advancing theInstitute’s mission of shaping the future of the built environment
for transformative impact in communities worldwide.
ULI’s interdisciplinary membership represents all aspects of
the industry, including developers, property owners, investors,architects, urban planners, public officials, real estate brokers,
appraisers, attorneys, engineers, financiers, and academics.
Established in 1936, the Institute has a presence in theAmericas, Europe, and Asia Pacific regions, with members
in 80 countries.
The extraordinary impact that ULI makes on land use decisionmaking is based on its members sharing expertise on a variety
of factors affecting the built environment, including urbanization,
demographic and population changes, new economic drivers,
technology advancements, and environmental concerns.
Peer-to-peer learning is achieved through the knowledge
shared by members at thousands of convenings each year thatreinforce ULI’s position as a global authority on land use andreal estate. In 2020 alone, more than 2,600 events were held in
about 330 cities around the world.
Drawing on the work of its members, the Institute recognizes
and shares best practices in urban design and development forthe benefit of communities around the globe.
More information is available at uli.org. Follow ULI on Twitter,
Facebook, LinkedIn, and Instagram.
W. Edward Walter
Global Chief Executive Officer
Urban Land Instituteuli.org
David Faulkner
President, Asia Pacific
Urban Land Instituteasia.uli.org
ULI Center for Real Estate Economics and Capital Markets
Anita Kramer
Senior Vice President
uli.org/capitalmarketscenter
Urban Land Institute2001 L Street, NW
Suite 200
Washington, DC 20036-4948
United States(202) 624-7000
www.uli.org

Front cover photo: Nihonbashi 2-Chome Area Project, Tokyo ​Image courtesy SOM
Photographer: Naomichi Sode
Page iii photo: COFCO Landmark Plaza, Beijing
Image courtesy SOM
Page 15 photo: The Mills, Hong Kong​
Image courtesy Nan Fung Development Ltd
Page 23 photo: Harbord Diggers, Freshwater, New South Wales​
Image courtesy Architectus+Chrofi+JMD
Page 34 photo: Kampung Admiralty, Singapore​
Image courtesy Housing and Development Board, Singapore
Photographer: Patrick Bingham-Hall
Page 39 photo: EY Centre, Sydney
Image Courtesy Mirvac

Emerging Trends in Real Estate®
Asia Pacific 2022
What are the expected best bets for investment and development in
2022? Based on personal interviews with and surveys from 334 of themost influential leaders in the real estate industry, this forecast will
give you a heads-up on where to invest, which sectors and markets
offer the best prospects, and trends in the capital markets that willaffect real estate. A joint undertaking between PwC and the Urban
Land Institute, this 16th edition of Emerging Trends Asia Pacific is theforecast you can count on for no-nonsense, expert insight.
ULI is the largest network of cross-disciplinary real estate and land
use experts who lead the future of urban development and create
thriving communities across the globe. As a ULI member, you
can connect with members around the world in Member Directory(members.uli.org), find ULI opportunities to lead and volunteer on
Navigator (navigator.uli.org), and explore ULI’s latest research andbest practices on Knowledge Finder, including all the Emerging
Trends in Real Estate ® reports published since 2003. Visit uli.org/join
to learn more about ULI’s exclusive member benefits.

www.uli.org

Highlights
Explores how investors are positioning for a postCOVID environment.
Tells you what to expect and where the best
opportunities are.
Elaborates on trends in the capital markets, including
sources and flows of equity and debt capital.
Indicates which property sectors offer opportunities andwhich ones to avoid.
Reports on how the economy and concerns about
credit issues are affecting real estate.
Discusses which metropolitan areas offer the most andleast potential.
Describes the impact of social and geopolitical trends
on real estate.
Explains how geographical and sectoral preferences
are changing.

www.pwc.com