2020 Capital Markets Outlook: Get tactical - Asia Pacific Research Snapshot | January 2020
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2020 Capital Markets Outlook: Get tactical Asia Pacific Research Snapshot | January 2020 1 2020 Capital Markets Outlook: Get tactical
Content 03 | Executive summary 04 | Growth momentum continues 05 | Tightly held logistics sector 06 | Occupier-led demand for office space 07 | Sustainability high on agenda 08 | REITs compete in new markets 09 | Focus on retail format 2 2020 Capital Markets Outlook: Get tactical
Executive summary
Asia Pacific real estate transaction volumes continue
to outperform the Americas and EMEA: Up 10% in the
first nine months of 2019, and 38% higher than 2014
for the full year. 4% annual regional economic growth,
cross-border investment opportunities, and a new
cycle of interest rate cuts have the potential to drive
higher transaction volumes.
Here are some of the key Asia Pacific investment
trends we are watching for 2020:
Logistics continues Flex space and Sustainability Listed REITs are Retail sales
to attract strong innovative initiatives by consolidating in growth presents
investor interest cities help drive governments a market where opportunities
office growth to improve the size matters
liveability of
gateway cities
In the region’s increasingly competitive and complex
markets, investors need to have clearly defined
strategies and move decisively to capitalise on
opportunities. 2020 is the year to get tactical.
3 2020 Capital Markets Outlook: Get tactical
Growth momentum continues
Real estate transactions set for further growth
There are many signals that Asia Pacific is set for another • China and India, the region’s largest economies, are set
strong year in 2020. to grow >5% annually vs global growth of 3.0-3.5%.
• Transaction volumes reached almost USD128 billion in • Cross-border transactions increased to 34% of total
the first ninemonths of 2019, up 10% y-o-y. deals in 2019 from 24% in 2014.
• Transactions in the region grew 30% since 2014, • Foreign investments into Asia Pacific are at a decade-
compared with the Americas and EMEA’s 10% drop. high, making up 35% of total volumes, mostly driven by
private equity funds and large-scale transactions.
• Investors seeking growth expected to upweight Asia
Pacific as global central banks cut rates. Deal size is
increasing, with 18% of transactions now over USD-500
million, up from 12% in 2014.
Real estate transaction
900
volumes in Asia Pacific grew
30% over last five years 800
700
Source: JLL estimates Asia Pacific +30% vs 2014
600
USD billions
500
Asia Pacific
EMEA
400
EMEA
Americas 300
200
Americas
100
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019F
4 2020 Capital Markets Outlook: Get tactical
Tightly held logistics sector
Logistics investment opportunities based on scale and regional footprint
Investors are confident in Asia Pacific’s demand for logistics The growing number of these pooled or separate account
and continue to invest in strong developers and operators funds also enabled major developers/operators to expand
since scale and regional footprint are the key requirements into new, emerging markets around South-East Asia
from 3PLs and e-commerce platforms. and India.
Sourcing suitable land sites has become more challenging The sector has undergone a re-rating of risk, with more
and transaction volumes within the logistics sector have institutional capital entering the sector via both direct and
fallen short of investors’ appetite in 2019. Even core capital indirect allocations. As a result, logistics assets capitalisation
has become more comfortable with the requirement to take rates have compressed more than other asset classes in the
on development and leasing risk, as underlying demand for last five years. Industrial yield spreads over office yields in
high-quality well-located facilities outpaces new supply in Sydney are now below 50bps, well below the 150 bps seen
most markets. at the end of 2012. Most markets have seen this trend to
varying degrees with Singapore as an exception, potentially
As the sector becomes more tightly held, we think investors
due to shorter land tenures on a large proportion of industrial
will continue to participate in joint ventures and take on
sites there.
development and leasing risks to access quality assets.
Spread between industrial 300
vs office capitalisation rates
industrial capitalisation rates bps
250
in Asia Pacific
Spread between office and
200
Source: JLL research
150
2012 100
2019
50
0
Singapore Shanghai Tokyo Seoul Hong Kong Sydney
5 2020 Capital Markets Outlook: Get tacticalOccupier-led demand for office space
Office growth fuelled by technology, professional services and flex space
Asia Pacific office demand grew a strong 3.8% in 2019, with a companies have increased their office footprint by over 20%
rental growth of 2%. Demand was the most resilient in Seoul, compound annual growth in the last ten years. We think
Tokyo, Singapore and Bengaluru. Rental growth was the flexible office operators may continue to expand in cities
strongest in Osaka, Singapore and Melbourne. Technology, where look-through occupancies are healthy and penetration
professional services and flexible office operators remain the is not high. They took 10% more space in 1H2019.
largest occupiers in gateway cities in Asia Pacific. Technology
Cities where tenant type is
expanding/ contracting Professional & business services
Source: JLL research Tech
Flex office
Healthcare
Banking
-4 -2 0 2 4 6 8 10 12
Prime office yields compressed ahead of the rate cut cycle, In 2019, we saw an uptick in joint-ventures and partial stake
with the biggest declines in Japan and Australia in 2019. JLL sales, as well as build-to-core acquisitions. We expect such
still expects some yield declines in Japan, China and India as transactions to grow in 2020 as investors get more tactical in
rates remain supportive. We expect investors to stay positive the later part of the cycle.
on Singapore and Osaka due to the positive supply-demand
dynamics but interest could pick up on Beijing office assets in
the near term.
6 2020 Capital Markets Outlook: Get tacticalSustainability high on agenda
Sustainability initiatives open investment opportunities
Sustainability initiatives by governments to improve the costs as well as innovative designs to attract more
liveability of gateway cities in Asia Pacific present excellent occupiers and tenants. Recently, Singapore-listed Keppel
opportunities for investors to capitalise on the right assets or REIT has obtained a green loan facility to grow its green
undertake redevelopment projects. building portfolio.
Singapore, for instance, has started on its sustainability Beijing has restricted the size of commercial developments
journey with the decentralisation of its CBD, encouraging in the central area and targets to reduce the population in its
the redevelopment of older office buildings into six central districts by 15% from 2014 levels.
mixed-use integrated developments and reducing the
Initiatives such as these present opportunities for
use of private transport.
astute real estate investors, either by acquiring or
The next generation of buildings is set to become more developing sustainable assets, or being a part of the city
‘green’, with sustainable technologies to save on operating redevelopment process.
7 2020 Capital Markets Outlook: Get tacticalREITs compete in new markets
Listed REITs in Asia Pacific outperformed equity markets in 2019
We expect REITs to remain highly competitive buyers of mergers and acquisitions will allow SREITs to deepen their
assets as the sector is trading at a significant premium above reach into new markets. We expect more REIT initial public
net asset values and tight implied cap rates. Retail REITs are offerings in Singapore and India in 2020.
the key laggard, potentially signalling further weakness in
While diversified and industrial REITs outperformed across
retail rents ahead.
the region, rising 31-34% year-to-date, retail REITs remained
In the region, Singapore REITs enjoyed the sharpest yield the laggard, rising just 8% year-to-date. Investors remain
compression and raised a record USD4.5 billion in primary cautious about rental growth, especially in Australia.
and secondary raisings over the last six months. Strategic
Performance of listed 170
REITs in Asia Pacific
150
Source: Reuters, JLL estimates
130
based on top 35 REITs
110
Australia
90
Singapore
HK 70
Japan
50
2014 2015 2016 2017 2018 YTD 2019
Performance of listed
REITs in Asia Pacific
year to date
Diversified Industrial Hospitality
Source: Reuters, JLL estimates
34% 31% 29%
based on top 35 REITs
Office APAC average Retail
22% 19% 9%
8 2020 Capital Markets Outlook: Get tacticalFocus on retail formats
Retail rents remain stable as sales grow and e-commerce players set up “real world” stores
While structural changes such as slower economic growth Real estate is no longer the key distribution channel for
and the penetration of e-commerce affected retail sales in retailers and real estate rents are part of, and not the only
2012-2015, an equilibrium seems to have been struck over component of, retailers’ engagement and distribution
the last four years. Retail sales are expected to grow around expenses. Retail rents stayed flat in 2019, similar to 2018,
8% annually, with emerging markets including India, China as retailers grapple with new ways to engage with
and Indonesia showing the most expansion. customers and compete with e-commerce platforms.
Retail rents in key Shanghai
6.0%
Asia Pacific cities Jakarta
5.0%
Mumbai
4.0%
Source: JLL research
3.0%
Beijing
2.0%
Singapore
1.0% Melbourne
Sydney
0.0%
-1.0% 2018 2019 2020 2021 2022
-2.0%
-3.0%
Retail investors have become more selective in assessing from China and India improving compared with past years.
retail assets, knowing that retail assets are more operational Going forward, although attitudes of global and regional
than expected. Pure-play online retailers are taking on investors toward retail assets continue to remain selective
physical stores to boost profitability. and prudent, overall the Asia Pacific retail investment market
continues to remain stable unlike other regions, underpinned
Although there are some signs of a slowdown in major
by a healthy leasing momentum as well as stable occupancy
markets like Australia and Japan, overall retail deal volume
across the region.
for 2019 is relatively on track, especially with deal flows
9 2020 Capital Markets Outlook: Get tacticalJLL 9 Raffles Place #39-00 Republic Plaza Singapore 048619 +65 6494 7068 Regina Lim Executive Director, Asia Pacific Capital Markets Research Regina.lim@jll.com Nicholas Wilson Director, Asia Pacific Capital Markets Research Nicholas.wilson@jll.com Sungmin Park Senior Research Manager, Asia Pacific Capital Markets Research Sungmin.park@jll.com About JLL About JLL Research JLL (NYSE: JLL) is a leading professional services firm that JLL’s research team delivers intelligence, analysis and insight specializes in real estate and investment management. through market-leading reports and services that illuminate Our vision is to reimagine the world of real estate, creating today’s commercial real estate dynamics and identify rewarding opportunities and amazing spaces where people tomorrow’s challenges and opportunities. Our more than 400 can achieve their ambitions. In doing so, we will build a better global research professionals track and analyze economic tomorrow for our clients, our people and our communities. and property trends and forecast future conditions in over 60 JLL is a Fortune 500 company with annual revenue of countries, producing unrivalled local and global perspectives. $16.3 billion, operations in over 80 countries and a global Our research and expertise, fueled by real-time information workforce of nearly 92,000 as of June 30, 2019. JLL is the and innovative thinking around the world, creates a brand name, and a registered trademark, of Jones Lang competitive advantage for our clients and drives successful LaSalle Incorporated. For further information, visit jll.com strategies and optimal real estate decisions. www.jll.com Jones Lang LaSalle ©2020 Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document has been compiled from sources believed to be reliable. Neither Jones Lang LaSalle nor any of its affiliates accept any liability or responsibility for the accuracy or completeness of the information contained herein. And no reliance should be placed on the information contained in this document. 10 2020 Capital Markets Outlook: Get tactical
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