Invesco Real Estate House View - H2 2020 Asia Pacific country summaries
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Invesco Real Estate House View
H2 2020 Asia Pacific country summaries
Image: Tsing Ma Bridge, Hong Kong.
This document is for Professional Clients and Qualified Investors (as specified in the important information), for Institutional Investors only in the United States, Australia
and Singapore, for certain specific sovereign wealth funds and/or Qualified Domestic Institutional Investors approved by local regulators only in the People’s Republic
of China, for certain specific Qualified Institutions and/or Sophisticated Investors only in Taiwan, for Qualified Professional Investors in Korea, for certain specific
institutional investors in Brunei, for Qualified Institutional Investors and/or certain specific institutional investors in Thailand, for certain specific institutional investors in
Malaysia upon request, for qualified buyers in the Philippines, and for Professional Investors only in Hong Kong and in Japan as defined under the Financial Instruments
and Exchange Law of Japan. In Canada, the document is intended only for accredited investors as defined under National Instrument 45–106. It is not intended for and
should not be distributed to, or relied upon by, the public or retail investors. Please do not redistribute this document.
Key to tables: 3-year forecast (2020-22) Supply growth hh New supply expressed as a percentage of total stock in the previous year, > +2.0% per annum (pa) h New supply expressed as a percentage of total stock in the previous year, in the range +0.5% to +2.0% pa n New supply expressed as a percentage of total stock in the previous year, in the range ±0.5% pa i New supply expressed as a percentage of total stock in the previous year, in the range –0.5% to –2.0% pa ii New supply expressed as a percentage of total stock in the previous year, < –2.0% pa Rental growth hh Net effective rental growth, > +5.0% pa h Net effective rental growth, in the range +2.0% to +5.0% pa n Net effective rental growth, in the range ±2.0% pa i Net effective rental growth, in the range –2.0% to –5.0% pa ii Net effective rental growth, < –5.0% pa Yield shift hh Yields rising by > 25 bps pa h Yields rising in the range 10 to 25 bps pa n Yields moving within ±10 bps pa i Yields falling in the range 10 to 25 bps pa ii Yields falling by > 25 bps pa Capital value growth hh Capital value growth, > +5.0% pa h Capital value growth, in the range +2.0% to +5.0% pa n Capital value growth, in the range ±2.0% pa i Capital value growth, in the range –2.0% to –5.0% pa ii Capital value growth, < –5.0% pa
Australia and New Zealand
Our strategic considerations: Market performance:
Core + Economic growth has turned negative, led by contractions in
+ Logistics: build-to-core prime quality assets in supply-constrained household consumption and strict lockdowns. Australia’s GDP
locations in east coast cities benefitting from infrastructure contraction in Q2 was the largest quarterly fall on record and
investment and better connectivity. is now in a recession for the first time in 29 years.
+ Residential: En-bloc transactions for completing new projects in + The Australian and New Zealand governments have provided
Sydney and Melbourne with low pre-sales and strong fundamentals. significant fiscal and monetary stimulus to support a recovery,
but risks to the outlook persist.
Higher return + Office face rents are holding; however, incentives have risen quite
+ Funding gap: Development finance as banks continue to decrease rapidly over H1 2020, resulting in negative effective rental growth.
exposure to commercial real estate, including preferred equity and + Structural tailwinds and flight to efficiency are supporting demand
mezzanine positions. for the prime logistics sector.
+ Office: Repositioning of secondary assets in CBD and suburban + Retail sector continues to face pressure from declining foot traffic,
locations in Melbourne, Brisbane and Perth as pricing and demand increases in store closures and rising vacancy. Rents are under
for secondary weakens. pressure and yields continue to soften across CBD and dominant
+ Hotels: Monitor for debt or equity as distress increases. Melbourne mall categories.
may witness more distress due to the high supply and lockdown + Residential sector is experiencing short-term weakness amidst
measures. a weaker economic backdrop. Medium-term benefits includes the
low interest rate environment, population growth and expected
undersupply.
Market outlook
Income (rental) growth: Australia Capital value cycle: Australia
Income (rental) growth Capital value cycle
The outlook for income (rental) growth in 2021 for select markets The outlook for capital values in 2021 for select markets
Office Industrial Retail
Declining Recovering
Rental Rents
growth slowing falling Office: Auckland, Sydney
Retail: Sydney Regional Office: Brisbane
Industrial: Brisbane, Melbourne, Sydney
Retail: Perth Regional
Office: Perth
Industrial: Perth
Sydney
Retail: Brisbane Regional,
Melbourne Regional
Melbourne Perth Regional
Sydney Regional
Brisbane Regional, Melbourne Regional
Brisbane
Sydney ■ Declining
■ Stabilizing/Peaking Office: Melbourne
■ Recovering
Perth Rental
Rents rising decline slowing
Brisbane, Perth Auckland, Melbourne
XXX-PPT-1 MM/YY (6pt)
Source: Invesco Real Estate as of September 2020. Source: Invesco Real Estate as of September 2020.
XXX-PPT-1 MM/YY (6pt)
Source: Invesco Real Estate as of September 2020 Source: Invesco Real Estate as of September 2020
1 2
Current rent Current yield1 Supply Rental growth Yield shift CV growth
Local standards (per sqm per year) (%) growth forecast forecast forecast
Office
Sydney AUD 814 4.50 J n n n
Melbourne AUD 399 4.76 h h n n
Brisbane AUD 287 5.63 J h n n
Perth AUD 280 6.75 J h n n
Auckland NZD 464 5.00 J n n n
Retail
Sydney AUD 1,649 5.00 — n h i
Melbourne AUD 1,433 5.25 — n h i
Brisbane AUD 1,355 4.88 — n h i
Perth AUD 1,631 5.75 — n n i
Logistics
Sydney AUD 127 4.88 — n n n
Melbourne AUD 79 5.00 — h n n
Brisbane AUD 120 5.50 — n n n
Perth AUD 92 6.13 — n n n
CV=capital value
1 Current yield reflects the income returns to investment net of transaction costs, assuming full occupancy and that the current income being paid is the market effective rent.
Source: Invesco Real Estate, JLL, June 2020.Chart 1: GDP growth outlook Chart 2: Employment outlook
Economic and demographic drivers
Chart 1: GDP growth outlook Chart 2: Employment outlook
Real annual GDP growth (y/y): Australia and New Zealand Total employment growth rate (y/y): Australia and New Zealand
8% 5%
Forecast Forecast
6% 4%
3%
4%
2%
2% 1%
0% 0%
-1%
-2%
-2%
-4%
-3%
-6% -4%
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2021f
2022f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Chart 3: Population growthAustralia New Zealand Chart 4: Bond rates and inflation
Australia outlook
New Zealand
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Chart 3: Population growth Chart 4: Bond rates and inflation outlook
Average annual population growth rate (y/y): Australia and New Zealand
Source: Oxford Economics as of September 2020, f=forecast, e=estimate
10-year government bond yield and inflation rate: Australia and New Zealand
Source: Oxford Economics as of September 2020, f=forecast, e=estimate
3 4
3.0% 7%
Forecast
6%
2.5%
5%
2.0%
4%
1.5% 3%
1.0% 2%
1%
0.5%
0%
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
0.0%
Australia New Zealand Sydney Brisbane Melbourne Perth Auckland
2011-2015 2016-2020 2021f-2023f Australia bond yield Australia CPI New Zealand bond yield New Zealand CPI
Source: Oxford Economics as of September 2020, f=forecast, e=estimate
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Chart 5: Commercial real estate transaction volume Chart 6: Yield spread by sector and city
Real estate capital markets and fundamentals trackers
Source: Oxford Economics as of September 2020, f=forecast Source: Oxford Economics as of September 2020, f=forecast, e=estimate
5 6
Chart 5: Commercial real estate transaction volume Chart 6: Yield spread by sector and city
Transaction activity by sector: Australia and New Zealand Yield/cap rate spreads to 10-year government bond yields: Australia and New Zealand
$40
Office Retail Industrial
7%
$35
6%
$30
5%
$25
US$ bn
4%
$20
3%
$15
2%
$10 1%
$5 0%
Auckland
Brisbane
Brisbane
Brisbane
Sydney
Sydney
Sydney
Perth
Perth
Perth
Melbourne
Melbourne
Melbourne
$-
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
YTD*
Office Retail Industrial 10-year historic average Current spread Long-term average +/-1 Std. deviation
Note: YTD* Year to date Note: Current spread is calculated using Q2 yield property prime yields and bond yields as
Chart
10-year 7: historic
Vacancy rate outlook
average-2010-2019 Chart
of Q28:2020. Rent growth outlook
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Note:YTD* Year to date Note: Current spread is calculated using Q2 yield property prime yields and bond yields of Q2 2020
Source:
10-year Real Capital Analytics as of September 2020.
historic average-2010-2019 Source: Invesco Real Estate based on data from JLL and Oxford Economics as of June 2020.
*Source: Real Capital Analytics as of September 2020 Source: Invesco Real Estate based on data from JLL and Oxford Economics as of June 2020
7
Chart 7: Vacancy rate outlook 8
Chart 8: Rent growth outlook
Vacancy rate by city and sector: Australia and New Zealand Rent growth rate by sector and city: Australia and New Zealand
Office Retail Office Retail Industrial
25% 8%
6%
20%
4%
15% 2%
0%
10% -2%
-4%
5%
-6%
0% -8%
Auckland
Brisbane
Brisbane
Regional
Regional
Regional
Brisbane
Auckland
Perth Regional
Brisbane
Brisbane
Regional
Regional
Sydney
Sydney
Perth
Perth
Melbourne
Melbourne
Melbourne
Melbourne
Melbourne
Sydney
Perth
Sydney
Sydney
Regional
Regional
Perth
Q2 2020 10-year historic average 2023f 10-year min. and max. 10-year historic average 3-year forecast average
Source: Invesco Real Estate based on data from JLL as of September 2020. Source: Invesco Real Estate based on data from JLL as of September 2020.
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
f=forecast
3-year forecast average-2021-2023
Source: Invesco Real Estate based on data from JLL as of September 2020, f=forecast Source: Invesco Real Estate based on data from JLL as of September 2020
9 10China
Our strategic considerations: Market performance:
Core + COVID-19 is largely contained; economy is stabilizing and trending
+ Modern warehouses in primary logistics hubs and their satellite cities towards a new normal – protracted geopolitical tensions, slower
with commitment from anchor tenants. growth and with strong emphasis on digital economy.
+ Structural drivers (urbanization, infrastructure and consumption)
Higher return have not derailed and are strengthening, but take time to adjust
+ Development of modern warehouses in the satellite cities of and gain solid footing.
primary logistics hubs with commitment from anchor tenants. + Property sectors are riding on structural drivers to recover sooner;
+ Data centers in the Tier 1 cities and consider satellite and Tier office market has higher supply risk.
2 cities only with pre-commitment. + Reasonable liquidity with stable yields and foreign investors remain
active in China.
+ The more resilient property sectors are non-bonded warehouses
and data centers.
Market
Income outlook
(rental) growth: China Capital value cycle: China
Income (rental) growth Capital value cycle
The outlook for income (rental) growth in 2021 for select markets The outlook for capital values in 2021 for select markets
Office Industrial Residential Retail
Declining Recovering
Rental Rents
growth slowing falling
Retail: Shanghai
Beijing, Shanghai Industrial: Shanghai
Industrial: Beijing
Beijing
Shanghai Residential: Beijing
Beijing, Shanghai
Retail: Beijing
Office: Beijing Residential: Shanghai
■ Declining
■ Stabilizing/Peaking
■ Recovering Office: Shanghai
Rental
Rents rising Beijing, Shanghai decline slowing
Source: Invesco Real Estate as of September 2020. Source: Invesco Real Estate as of September 2020.
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Source: Invesco Real Estate as of September 2020 Source: Invesco Real Estate as of September 2020
1 2
Current rent Current yield1 Supply Rental growth Yield shift CV growth
Local standards (per sqm per year) (%) growth forecast forecast forecast
Office
Beijing CNY 6,291 5.21 n n n n
Shanghai CNY 5,112 6.82 J n n n
Retail
Beijing CNY 10,907 6.37 J n n n
Shanghai CNY 17,066 4.53 J n n n
Logistics
Beijing CNY 594 6.70 J h n h
Shanghai CNY 537 6.82 J h n h
Residential
Beijing CNY 1,703 2.51 J n n n
Shanghai CNY 1,624 2.04 h n n n
CV=capital value
Source: Invesco Real Estate, JLL, June 2020.
1 Current yield reflects the income returns to investment net of transaction costs, assuming full occupancy and that the current income being paid is the market effective rent before
operating expense.Chart 1: GDP growth outlook Chart 2: Employment outlook
Economic and demographic drivers
Chart 1: GDP growth outlook Chart 2: Employment outlook
Real annual GDP growth (y/y): China Total employment growth rate (y/y): China
16% 4.0% Forecast
Forecast
14% 3.0%
12% 2.0%
10% 1.0%
8% 0.0%
6% -1.0%
4% -2.0%
2% -3.0%
0% -4.0%
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Chart 3: Population growth China Chart 4: Bond rates and inflation outlook
China
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Chart 3: Population growth Chart 4: Bond rates and inflation outlook
Average annual
Source: Oxford Economics population
as of September growth
2020, f=forecast, e=estimate rate (y/y): China and select markets 4
10-year
Source: Oxford government
Economics as of September bond yield
2020, f=forecast, and inflation rate: China
e=estimate
3
4.5% 7%
Forecast
4.0% 6%
3.5% 5%
3.0% 4%
2.5% 3%
2.0% 2%
1.5% 1%
1.0% 0%
0.5% -1%
0.0%
-2%
China Beijing Shanghai Shenzen Guangzhou
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
-0.5%
2011-2015 2016-2020 2021f-2023f China bond yield China CPI
Source: Oxford Economics as of September 2020. f=forecast, e=estimate
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Chart 5: Commercial real estate transaction volume Chart 6: Yield spread by sector and city
5
Real estate capital markets and fundamentals trackers
Source: Oxford Economics as of September 2020, f=forecast
6
Source: Oxford Economics as of September 2020, f=forecast, e=estimate
Chart 5: Commercial real estate transaction volume Chart 6: Yield spread by sector and city
Transaction activity by sector: China Yield/cap rate spreads to 10-year government bond yields: China
$45 Office Retail Industrial Residential
4%
$40
3%
$35
2%
$30
1%
US$ bn
$25
0%
$20
-1%
$15
-2%
$10
-3%
Shanghai
Shanghai
Shanghai
Shanghai
Beijing
Beijing
Beijing
$5 Beijing
$0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
YTD*
Office Retail Industrial 10-year historic average
Current spread Long-term average +/-1 Std. deviation
Note: YTD* Year to date Note: Current spread is calculated using Q2 yield property prime yields and bond yields as of
Chart
10 Year7:historic
Vacancy rate outlook
average-2010-2019 Chart
Q2 2020. 8: Rent growth outlook
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Note: YTD* Year to date Note: Current spread is calculated using Q2 yield property prime yields and bond yields of Q2 2020
Source: Real Capital Analytics as of September 2020.
10 Year historic average-2010-2019 Source: Invesco Real Estate based on data from JLL and Oxford Economics as of June 2020.
Source: Real Capital Analytics as of September 2020 Source: Invesco Real Estate based on data from JLL and Oxford Economics as of June 2020
7
Chart 7: Vacancy rate outlook 8
Chart 8: Rent growth outlook
Vacancy rate by city and sector: China Rent growth rate by sector and city: China
Office Retail Industrial Office Retail Industrial Residential
30% 10%
25% 8%
20% 6%
15% 4%
10% 2%
5% 0%
0% -2%
Shanghai
Shanghai
Shanghai
Shanghai
Beijing
Beijing
Beijing
Beijing
Shanghai
Shanghai
Shanghai
Beijing
Beijing
Beijing
Q2 2020 10-year historic average 2023f 10-year min. and max. 10-year historic average 3-year forecast average
Source: Invesco Real Estate based on data from JLL as of September 2020. Source: Invesco Real Estate based on data from JLL as of September 2020.
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
f=forecast
3-year forecast average-2021-2023
Source: Invesco Real Estate based on data from JLL as of September 2020, f=forecast Source: Invesco Real Estate based on data from JLL as of September 2020
9 10Hong Kong
Our strategic considerations: Market performance:
Core + Severely hit by COVID-19, US-China crossfire and lingering
+ Build-to-suit data center with master lease to operators. social unrest.
+ Property fundamentals continue to deteriorate with broad-base
Higher return downgrade. The recovery path is expected to be lengthened.
+ For-lease residential targeting specific demand segments and + Very few risk-rewarding opportunities – yields have softened but
located in submarkets benefit from infrastructure improvement. not enough to compensate risks.
+ Relatively resilient sectors and submarkets are data center and
office submarket benefiting from decentralization trend and
infrastructure improvement.
Market outlook
Income (rental) growth: Hong Kong Capital value cycle: Hong Kong
Income (rental) growth Capital value cycle
The outlook for income (rental) growth in 2021 for select markets The outlook for capital values in 2021 for select markets
Office Industrial Residential Retail
Declining Recovering
Rental Rents
growth slowing falling
Retail: Hong Kong
Hong Kong Central
Industrial: Hong Kong
Hong Kong Office: Hong Kong Residential: Hong Kong
Hong Kong
■ Declining
Hong Kong ■ Stabilizing/Peaking
■ Recovering
Rental
Rents rising Hong Kong decline slowing
Source: Invesco Real Estate as of September 2020. Source: Invesco Real Estate as of September 2020.
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Source: Invesco Real Estate as of September 2020 Source: Invesco Real Estate as of September 2020
1 2
Current rent Current yield1 Supply Rental growth Yield shift CV growth
Local standards (per sqm per year) (%) growth forecast forecast forecast
Office HKD 8,127 2.78 hh n n n
Retail HKD 15,985 4.83 hh n n h
Logistics HKD 1,627 3.86 h n n n
Residential HKD 5,242 1.23 h h n h
CV=capital value
1 Current yield reflects the income returns to investment net of transaction costs, assuming full occupancy and that the current income being paid is the market effective rent.
Source: Invesco Real Estate, JLL, June 2020.Chart 1: GDP growth outlook Chart 2: Employment outlook
Economic and demographic drivers
Chart 1: GDP growth outlook Chart 2: Employment outlook
Real annual GDP growth (y/y): Hong Kong Total employment growth rate (y/y): Hong Kong
10% 6.0%
Forecast Forecast
8%
4.0%
6%
4% 2.0%
2%
0.0%
0%
-2% -2.0%
-4% -4.0%
-6%
-6.0%
-8%
-10% -8.0%
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Chart 3: Population growth Hong Kong Chart 4: Bond rates and inflation outlook
Hong Kong
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Chart 3: Population growth Chart 4: Bond rates and inflation outlook
Average annual
Source: Oxford Economics population
as of September 2020, f=forecast,growth
e=estimate rate (y/y): Hong Kong 4
10-year government
Source: Oxford Economics bond
as of September 2020, yield
f=forecast, and inflation rate: Hong Kong
e=estimate
3
0.9% 8%
Forecast
0.8%
6%
0.7%
4%
0.6%
0.5% 2%
0.4%
0%
0.3%
0.2% -2%
0.1%
-4%
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
0.0%
Hong Kong
2011-2015 2016-2020 2021f-2023f
Hong Kong bond yield Hong Kong CPI
Source: Oxford Economics as of September 2020. f=forecast, e=estimate
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Chart 5: Commercial real estate transaction volume Chart 6: Yield spread by sector and city
5
Real estate capital markets and fundamentals trackers
Source: Oxford Economics as of September 2020, f=forecast
6
Source: Oxford Economics as of September 2020, f=forecast, e=estimate
Chart 5: Commercial real estate transaction volume Chart 6: Yield spread by sector and city
Transaction activity by sector: Hong Kong Yield/cap rate spreads to 10-year government bond yields: Hong Kong
$30
Office Retail Industrial Residential
5%
$25
4%
$20 3%
US$ bn
$15 2%
1%
$10
0%
$5
-1%
$0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 -2%
YTD* Hong Kong Hong Kong Hong Kong Hong Kong
Office Retail Industrial 10-year historic average Current spread Long-term average +/-1 Std. deviation
Note: YTD* Year to date Note: Current spread is calculated using Q2 yield property prime yields and bond yields
Chart 7: historic
10-year Vacancy rate outlook
average-2010-2019 Chart
as of Q2 8:2020.
Rent growth outlook
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Note:YTD* Year to date Note: Current spread is calculated using Q2 yield property prime yields and bond yields of Q2 2020
Source: Real Capital Analytics as of September 2020.
10-year historic average-2010-2019 Source: Invesco Real Estate based on data from JLL and Oxford Economics as of June 2020.
Source: Real Capital Analytics as of September 2020 Source: Invesco Real Estate based on data from JLL and Oxford Economics as of June 2020
7
Chart 7: Vacancy rate outlook 8
Chart 8: Rent growth outlook
Vacancy rate by sector: Hong Kong Rent growth rate by sector: Hong Kong
Office Retail Industrial Residential Office Retail Industrial Residential
16% 7%
14% 6%
5%
12%
4%
10%
3%
8%
2%
6%
1%
4% 0%
2% -1%
0% -2%
Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong
Q2 2020 10-year historic average 2023f 10-year min. and max. 10-year historic average 3-year forecast average
Source: Invesco Real Estate based on data from JLL as of September 2020. Source: Invesco Real Estate based on data from JLL as of September 2020.
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
f=forecast
3-year forecast averag-2021-2023
Source: Invesco Real Estate based on data from JLL as of September 2020, f=forecast Source: Invesco Real Estate based on data from JLL as of September 2020
9 10Japan
Our strategic considerations: Market performance:
Core + Deep GDP contraction is expected in 2020 due to the global
+ Logistics: Quality assets in the three major metropolitan pandemic. The escalating US-China tension brings in structural
prime clusters or regional hub areas. uncertainty on economic recovery.
+ Residential: Tokyo and gateway cities, prefer submarkets + BOJ confirmed to persist yield-curve-control manipulation and
with solid population inflow fundamentals. monetary easing policy in the foreseeable future until the 2%
+ Office: Selective tech/innovation hubs in prime locations inflation hurdle cleared.
and assets which are appropriately priced. + Most occupier markets are entering into deteriorating phase
while logistics and residential sectors stand in better position with
Higher return solid structural or diversified demand support.
+ Logistics: Property renewal at prime logistics clusters, + Increasing wait-and-see investors and declined transaction
development at regional hub locations. volume suggest possible valuation shift going forward, but more
+ Residential: Development forward commitment, lease-up fundamental factor driven as yield protected by the central bank.
of new completions in core locations.
+ Repriced core-like assets.
Market outlook
Income (rental) growth: Japan Capital value cycle: Japan
Income (rental) growth Capital value cycle
The outlook for income (rental) growth in 2021 for select markets The outlook for capital values in 2021 for select markets
Office Industrial Residential Retail
Declining Recovering
Rental Rents
growth slowing falling
Retail: Tokyo Office: Nagoya, Osaka, Tokyo5
Office: Fukuoka Residential: Tokyo
Industrial: Tokyo
Tokyo Nagoya, Tokyo5
Fukuoka, Osaka
Tokyo
Tokyo ■ Declining
■ Stabilizing/Peaking
■ Recovering
Rental
Rents rising decline slowing
Source: Invesco Real Estate as of September 2020. Source: Invesco Real Estate as of September 2020.
Source: Invesco Real Estate as of September 2020 Source: Invesco Real Estate as of September 2020
1 2
Current rent1 Current yield2 Supply Rental growth Yield shift CV growth
Local standards (per sqm per year) (%) growth forecast forecast forecast
Office
Tokyo 5 wards (Grade A) JPY 101,723 2.60 J i n i
Tokyo 5 wards (Grade B) JPY 65,700 3.10 h i n i
Tokyo 23 wards (All grade) JPY 85,196 3.50 h i n i
Osaka 2 wards (Grade A) JPY 60,854 2.90 J n n i
Osaka City (All grade) JPY 53,361 3.80 h n n n
Nagoya (All grade) JPY 50,457 4.50 h n n n
Fukuoka (All grade) JPY 60,004 4.10 J n n n
Yokohama JPY 60,294 4.20 J n n h
Retail
Tokyo JPY 242,407 2.60 — n n n
Residential
Tokyo JPY 63,231 4.10 — n n n
Logistics
Greater Tokyo JPY 11,918 3.90 J n n n
1 Inclusive of management fees
2 Current yield reflects the income returns to investment net of transaction costs, assuming full occupancy and that the current income being paid is the market effective rent.
CV=capital value
Tokyo 5 wards consist of Chiyoda-ku, Chuo-ku, Minato-ku, Shibuya-ku and Shinjuku-ku. Osaka 2 wards consist of Kita-ku and Chuo-ku.
Source: Invesco Real Estate, KEN, JLL, CBRE, Japan Real Estate Institute, J-REIT DB, as of June 2020.Chart 1: GDP growth outlook Chart 2: Employment outlook
Economic and demographic drivers
Chart 1: GDP growth outlook Chart 2: Employment outlook
Real annual GDP growth (y/y): Japan Total employment growth rate (y/y): Japan
6% 2.5%
Forecast Forecast
4% 2.0%
1.5%
2%
1.0%
0% 0.5%
-2% 0.0%
-0.5%
-4%
-1.0%
-6% -1.5%
-8% -2.0%
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Chart 3: Population growth Japan Chart 4: Bond rates and inflation Japan
outlook
Chart 3: Population growth Chart 4: Bond rates and inflation outlook
Average annual population growth rate (y/y): Japan and select markets
Source: Oxford Economics as of September 2020, f=forecast, e=estimate
10-year government
Source: Oxford Economics bond
as of September 2020, yield
f=forecast, and inflation rate: Japan
e=estimate
4
3
0.8% 3.0%
Forecast
2.5%
0.6%
2.0%
0.4% 1.5%
1.0%
0.2%
0.5%
0.0% 0.0%
-0.5%
-0.2% -1.0%
-0.4% -1.5%
-2.0%
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
-0.6%
Japan Tokyo Prefecture Osaka City Nagoya City
Japan bond yield Japan CPI
2011-2015 2016-2020 2021f-2023f
Source: Oxford Economics as of September 2020. f=forecast, e=estimate
Chart 5: Commercial real estate transaction volume
Source: Oxford Economics as of September 2020, f=forecast
Chart 6: Yield spread by sector and city
Real estate capital markets and fundamentals trackers
Source: Oxford Economics as of September 2020, f=forecast, e=estimate
5 6
Chart 5: Commercial real estate transaction volume Chart 6: Yield spread by sector and city
Transaction activity by sector: Japan Yield/cap rate spreads to 10-year government bond yields: Japan
$50
Office Retail Industrial Residential
6%
$45
$40
5%
$35
$30
US$ bn
4%
$25
$20
3%
$15
$10
2%
$5
Nagoya
Tokyo5
Osaka
Tokyo
Tokyo
Tokyo
Fukuoka
$0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
YTD*
Office Retail Current spread Long-term average +/-1 Std. deviation
Note: YTD*: Year to date Industrial 10-year historic average
Note: Current spread is calculated using Q2 yield property prime yields and bond yields as of
Chart
10-year7:historic Vacancy rate outlook
average-2010-2019 Chart
Q2 2020. 8: Rent growth outlook
Note: YTD* : Year to date Note: Current spread is calculated using Q2 yield property prime yields and bond yields of Q2 2020
Source:
10-year Real Capital Analytics as of September 2020.
historic average-2010-2019 Source: Invesco Real Estate based on data from JLL and Oxford Economics as of June 2020.
Source: Real Capital Analytics as of September 2020 Source: Invesco Real Estate based on data from JLL and Oxford Economics as of June 2020
7
Chart 7: Vacancy rate outlook 8
Chart 8: Rent growth outlook
Vacancy rate by city and sector: Japan Rent growth rate by sector and city: Japan
Office Residential Office Retail Industrial Residential
16% 6%
14% 5%
4%
12%
3%
10% 2%
8% 1%
0%
6%
-1%
4% -2%
2% -3%
-4%
0%
Nagoya
Tokyo5
Tokyo
Tokyo
Tokyo
Osaka
Fukuoka
Nagoya
Tokyo5
Osaka
Tokyo
Fukuoka
Q2 2020 10-year historic average 2023f 10-year min. and max. 10-year historic average 3-year forecast average
Source: Invesco Real Estate based on data from JLL as of September 2020. Source: Invesco Real Estate based on data from JLL as of September 2020.
f=forecast
3-year forecast average-2021-2023
Source: Invesco Real Estate based on data from JLL as of September 2020, f=forecast Source: Invesco Real Estate based on data from JLL as of September 2020Singapore
Our strategic considerations: Market performance:
Core + Singapore’s GDP contracted by 13% in Q2 2020, the sharpest
+ Office: Pricing remains tight and rental growth is moderating. quarterly contraction on record, due to private consumption and
Select opportunities only. investment suffering in the COVID-19 shutdowns.
+ Logistics: High spec facilities and business park assets that are + With the containment of the outbreak now advanced domestically,
likely to benefit from high value-add user demand and intra- the economy is likely to gradually reopen. However, the pace of
regional/domestic trade demand. recovery in mobility and trade suggests overall risks remain to the
downside amid the ongoing pandemic.
Higher return + Significant government stimulus has been introduced to aid
+ Office: Uncertainty may provide investment opportunity and domestic demand, and support the retail and hospitality sectors
repricing of secondary stock. Focus on secondary and lease which are the most vulnerable to the COVID-19 situation.
up opportunities in the CBD and CBD fringe. + Office rent growth has turned negative, however capital value
+ Hotel: Monitor for distress in the market amidst tourism recovery pricing for prime has held steady. A bright spot in demand includes
and low supply environment. technology sector tenants.
+ Logistics sector remains a two-tier market, with high spec logistics
and business park sectors benefitting from government directives
toward more high-value and innovative manufacturing.
+ Limited transaction activity is expected as uncertainty in the global
market persists, although pricing stability is expected to remain for
prime assets.
Market outlook
Income (rental) growth: Singapore Capital value cycle: Singapore
Income (rental) growth Capital value cycle
The outlook for income (rental) growth in 2021 for select markets The outlook for capital values in 2021 for select markets
Office Industrial Retail
Declining Recovering
Rental Rents
growth slowing falling
Singapore Retail: Singapore
■ Declining Industrial: Singapore
■ Stabilizing/Peaking Office: Singapore
Singapore ■ Recovering
Rental
Rents rising Singapore decline slowing
Source: Invesco Real Estate as of September 2020. Source: Invesco Real Estate as of September 2020.
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Source: Invesco Real Estate as of September 2020 Source: Invesco Real Estate as of September 2020
1 2
Current rent Current yield1 Supply Rental growth Yield shift CV growth
Local standards (per sqm per year) (%) growth forecast forecast forecast
Office SGD 1,096 3.42 hh h n h
Retail SGD 3,649 3.80 n n n i
Logistics SGD 132 6.88 h n n n
CV=capital value
1 Current yield reflects the income returns to investment net of transaction costs, assuming full occupancy and that the current income being paid is the market effective rent.
Source: Invesco Real Estate, JLL, June 2020.Chart 1: GDP growth outlook Chart 2: Employment outlook
Economic and demographic drivers
Chart 1: GDP growth outlook Chart 2: Employment outlook
Real annual GDP growth (y/y): Singapore Total employment growth rate (y/y): Singapore
20% 12%
Forecast Forecast
10%
15%
8%
10%
6%
5% 4%
2%
0%
0%
-5%
-2%
-10% -4%
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Chart 3: Population growth Singapore
Chart 4: Bond rates and inflation outlook
Singapore
Chart 3: Population growth Chart 4: Bond rates and inflation outlook
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Average annual population growth rate (y/y): Singapore
Source: Oxford Economics as of September 2020, f=forecast, e=estimate 10-year government bond yield and inflation rate: Singapore
Source: Oxford Economics as of September 2020, f=forecast, e=estimate
4
3
2.0% 7%
Forecast
1.8% 6%
1.6% 5%
1.4% 4%
1.2% 3%
1.0% 2%
0.8% 1%
0.6% 0%
0.4% -1%
0.2%
-2%
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
0.0%
Singapore
2011-2015 2016-2020 2021f-2023f Singapore bond yield Singapore CPI
Source: Oxford Economics as of September 2020. f=forecast, e=estimate
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Chart 5: Commercial real estate transaction volume
Source: Oxford Economics as of September 2020, f=forecast
Chart 6: Yield spread by sector and city
Real estate capital markets and fundamentals trackers
Source: Oxford Economics as of September 2020, f=forecast, e=estimate
5 6
Chart 5: Commercial real estate transaction volume Chart 6: Yield spread by sector and city
Transaction activity by sector: Singapore Yield/cap rate spreads to 10-year government bond yields: Singapore
$20 Office Retail Industrial
7%
$18
$16 6%
$14
5%
$12
US$ bn
4%
$10
$8 3%
$6 2%
$4
1%
$2
$0 0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Singapore Singapore Singapore
YTD*
Office Retail Current spread Long-term average +/-1 Std. deviation
Industrial 10-year historic average
Note:YTD* Year to date Note: Current spread is calculated using Q2 yield property prime yields and bond yields
Chart
10-year7:historic
Vacancy rate outlook
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Note:YTD* Year to date average-2010-2019
10-year historic average-2010-2019
Chart 8:2020.
as of Q2 Rent growth outlook
Note: Current spread is calculated using Q2 yield property prime yields and bond yields of Q2 2020
Source: Real Capital Analytics as of September 2020.
Source: Real Capital Analytics as of September 2020 Source: Invesco Real Estate based on data from JLL and Oxford Economics as of June 2020.
Source: Invesco Real Estate based on data from JLL and Oxford Economics as of June 2020
7 8
Chart 7: Vacancy rate outlook Chart 8: Rent growth outlook
Vacancy rate by city and sector: Singapore Rent growth rate by sector: Singapore
Office Retail Industrial Office Retail Industrial
14% 8%
7%
12%
6%
10% 5%
4%
8%
3%
6%
2%
4% 1%
0%
2%
-1%
0% -2%
Singapore Singapore Singapore Singapore Singapore Singapore
10-year historic average 3-year forecast average
Q2 2020 10-year historic average 2023f 10-year min. and max.
Source: Invesco Real Estate based on data from JLL as of September 2020. Source: Invesco Real Estate based on data from JLL as of September 2020.
XXX-PPT-1 MM/YY (
XXX-PPT-1 MM/YY (
f=forecast
3-year forecast average-2021-2023
Source: Invesco Real Estate based on data from JLL as of September 2020, f=forecast Source: Invesco Real Estate based on data from JLL as of September 2020South Korea
Our strategic considerations: Market performance:
Core + GDP is expected to contract in 2020 with a severe demand plunge
+ Modern Logistics: Prime location modern property in Greater caused by COVID-19.
Seoul, frequent round-trip delivery locations preferred. + BOK’s rate cuts, government fiscal spending packages are expected
+ Office: Grade A office in tech/innovation hub location, i.e. to support a U-shaped rebound from late 2021.
Seoul GBD. + Office occupier market benefits from persisting upgrade and
consolidation demand; short-term COVID-19 impact is estimated
Higher return to materialize in the next 12 months.
+ Logistics development at prime locations in Greater Seoul; cold + Logistics occupiers’ market is holding firm due to robust structural
storage/delivery center conversion/redevelopment opportunity. demand on the way in the medium term.
+ Reposition of under-performing assets, emerging specialty sector; + Investment demand by strong domestic institutional continue
i.e. data centers. to support pricing, however short-term attention on sentiment
fluctuations needed.
+ Yields are expected to hold flat in near term, under the pressure
of flattened yield curve.
Market outlook
Income (rental) growth: South Korea Capital value cycle: South Korea
Income (rental) growth Capital value cycle
The outlook for income (rental) growth in 2021 for select markets The outlook for capital values in 2021 for select markets
Office Retail
Declining Recovering
Rental Rents
growth slowing falling
Retail: Seoul
Office: Seoul
Seoul
■ Declining
Seoul ■ Stabilizing/Peaking
■ Recovering
Rental
Rents rising decline slowing
Source: Invesco Real Estate as of September 2020. Source: Invesco Real Estate as of September 2020.
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Source: Invesco Real Estate as of September 2020 Source: Invesco Real Estate as of September 2020
1 2
Current rent Current yield1 Supply Rental growth Yield shift CV growth
Local standards (per sqm per year) (%) growth forecast forecast forecast
Office KRW 614,501 4.28 J n n n
Retail KRW 3,794,655 3.67 — n n n
CV=capital value
1 Current yield reflects the income returns to investment net of transaction costs, assuming full occupancy and that the current income being paid is the market effective rent.
Source: Invesco Real Estate, JLL, June 2020.Chart 1:GDP growth outlook Chart 2: Employment outlook
Economic and demographic drivers
Chart 1: GDP growth outlook Chart 2: Employment outlook
Real annual GDP growth (y/y): South Korea Total employment growth rate (y/y): South Korea
9% 3.5%
Forecast Forecast
8% 3.0%
7%
2.5%
6%
2.0%
5%
4% 1.5%
3% 1.0%
2% 0.5%
1%
0.0%
0%
-0.5%
-1%
-1.0%
-2%
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Chart 3: Population growth South Korea
Chart 4: Bond rates and inflation
Southoutlook
Korea
XXX-PPT-1 MM/YY (6pt)
Chart 3: Population growth Chart 4: Bond rates and inflation outlook
XXX-PPT-1 MM/YY (6pt)
Average annual population growth rate (y/y): South Korea and Seoul 10-year government bond yield and inflation rate: South Korea
Source: Oxford Economics as of September 2020, f=forecast, e=estimate
Source: Oxford Economics as of September 2020, f=forecast, e=estimate 4
3
0.6% 8%
Forecast
0.4% 7%
0.2% 6%
5%
0.0%
4%
-0.2%
3%
-0.4%
2%
-0.6%
1%
-0.8%
0%
2021f
2022f
2023f
2020e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
-1.0%
South Korea Seoul
2011-2015 2016-2020 2021f-2023f
South Korea bond yield South Korea CPI
Source: Oxford Economics as of September 2020. f=forecast, e=estimate
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
Chart 5: Commercial real estate transaction volume
Source: Oxford Economics as of September 2020, f=forecast
Chart 6: Yield spread by sector and city
Real estate capital markets and fundamentals trackers
Source: Oxford Economics as of September 2020, f=forecast, e=estimate
5 6
Chart 5: Commercial real estate transaction volume Chart 6: Yield spread by sector and city
Transaction activity by sector: South Korea Yield/cap rate spreads to 10-year government bond yields: South Korea
$30
Office Retail
3.5%
$25
3.0%
$20 2.5%
US$ bn
$15 2.0%
1.5%
$10
1.0%
$5
0.5%
$0 0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Seoul Seoul
YTD*
Office Retail Industrial 10-year historic average Current spread Long-term average +/-1 Std. deviation
Note:YTD*: Year to date Note: Current spread is calculated using Q2 yield property prime yields and bond yields as of
Chart
10-year7:historic
Vacancy outlook
XXX-PPT-1 MM/YY (6pt)
XXX-PPT-1 MM/YY (6pt)
average-2010-2019
Note:YTD* : Year to date
10-year historic average-2010-2019
Chart 8: Rent growth outlook
Q2 2020.
Note: Current spread is calculated using Q2 yield property prime yields and bond yields of Q2 2020
Source: Real Capital Analytics as of September 2020.
Source: Real Capital Analytics as of September 2020 Source: Invesco Real Estate based on data from JLL and Oxford Economics as of June 2020.
Source: Invesco Real Estate based on data from JLL and Oxford Economics as of June 2020
7 8
Chart 7: Vacancy rate outlook Chart 8: Rent growth outlook
Vacancy rate by city and sector: South Korea Rent growth rate by sector: South Korea
Office Office Retail
16% 1.8%
1.6%
14%
1.4%
12%
1.2%
10%
1.0%
8%
0.8%
6% 0.6%
4% 0.4%
2% 0.2%
0% 0.0%
Seoul Seoul Seoul
Q2 2020 10-year historic average 2023f 10-year min. and max. 10-year historic average 3-year forecast average
Source: Invesco Real Estate based on data from JLL as of September 2020. Source: Invesco Real Estate based on data from JLL as of September 2020.
XXX-PPT-1 MM/YY (
XXX-PPT-1 MM/YY (
f=forecast
3-year forecast average-2021-2023
Source: Invesco Real Estate based on data from JLL as of September 2020, f=forecast Source: Invesco Real Estate based on data from JLL as of September 2020Investment risks You may only reproduce, circulate and use this document (or any part of it) with the consent
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The value of investments and any income will fluctuate These include, among other things, projections, forecasts, estimates of income, yield and
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