The many twists and turns of 2016 will have a huge role to play in shaping 2017 – and the global real estate industry.
The coming months will see China cement its new position as the world’s largest cross-border real estate investor as current U.S. President-elect Donald Trump settles into his first year in power and the UK triggers Article 50 to officially start the process of leaving the European Union.
“The overall commercial real estate investment market should remain stable in 2017. We expect continued institutional appetite for real estate in the region but an ongoing shortage of stock.”
So what are the key trends to watch for investors interested in Asia Pacific’s real estate in 2017?
1. China to continue investing overseas
After China overtook the U.S. last year to become the world’s largest cross-border real estate investor, it’s showing no signs of relinquishing the top spot anytime soon.
While its recent move to curb overseas investments could have a short-term impact on high-profile deals, cross-border investment in real estate remains a key part of many Chinese investors’ longer-term game plan.
“Investing overseas is a strategic move for most Chinese investors,” says Stuart Crow, JLL’s Head of Asia Pacific Capital Markets. “While there may be some short-term slow-down or delay, we expect few long-term structural changes. The trend of Chinese capital going out for real estate is not stopping. If anything, it is going to gather momentum due to the enormous capital base in China.”
2. New sectors on the rise
As investors continue to look for value, a number of alternative sectors are looking attractive. Self-storage, for example, offers investors exposure to the growing number of consumers who live in compact homes and require separate storage space.
Meanwhile, the growth of the e-commerce sector is fuelling interest in the logistics sector. Elsewhere, an increase in demand for data centres, propelled by the adoption of cloud computing and big data, means that canny investors are considering that sector, too.
3. New countries on the radar
Vietnam is the red hot market for Southeast Asia this year. Last year its real estate sector saw a 12 percent year-on-year increase in investment and its forecast to grow thanks to favourable conditions such as greater market transparency and a projected GDP growth of about 6 percent, in keeping with growth rates this year.
Mature markets Australia and Singapore are still attractive. “Investors like Australia because of its transparency and higher yields,” says Crow. “For Singapore, in what has traditionally been a volatile market, investors are seeing the current entry point as an attractive one.”
4. Big deals to keep on coming
More big ticket investments are on the cards following several significant transactional highlights in 2016. These included Qatar Investment Authority, buying Asia Square Tower 1, Beijing-based insurance company China Life snapping up the Century Link complex in Shanghai’s Pudong district for $2.96 billion and Brookfield Asset Management acquiring the International Finance Centre Seoul for $2.7 billion.
“There is every indication that this trend will continue into 2017,” says Crow. “The prospect of most central banks keeping interest rates low for an extended period means capital continues to be deployed into real estate investment. This will help buoy corporate occupational demand and rent performance. Yields in core asset classes will remain stable because of investor demand.”
5. A new political landscape
Although unexpected results in the Brexit vote and the U.S. presidential election caused short-term currency volatility, they did not lead to any significant changes in Asia Pacific’s real estate market.
However, Dr Walters says there is some potential for stock market and currency volatility in 2017, as well as political risk due to geopolitical tensions. “This may drive the world’s largest investors to increase their allocations to the asset class because of real estate’s safe haven nature and diversification benefits plus relatively higher returns,” she concludes.