Asia Pacific Real Estate Investment Outlook

Although Asia was the first epicenter of the pandemic, governments of key markets have appeared to be relatively more vigilant in containing the spread of the virus. With vaccination programs being rolled out, confidence is gradually stabilizing, and sights are now set on the post-pandemic economic rebound.
Economic activity has also shown signs of early recovery and stabilization. Real GDP growth in China and New Zealand turned positive in H2 2020. In Australia, Hong Kong, Japan, Singapore and South Korea, GDP decline has slowed down materially in Q4 2020 as compared to Q2 2020. China reported a record 18.3% yoy GDP growth in Q1 2021 and unemployment rates in Australia dropped from 7.4% in July 2020 to 5.6% in March 2021. Oxford Economics expects GDP of key economies to rebound notably in 2021.
As for Real Estate, occupier demand has undoubtedly slowed down as corporates remain cautious in navigating through the COVID related risks and opt to delay real estate decisions. However, certain structural demand drivers have strengthened due to COVID and related property types have therefore enjoyed strong demand; examples include logistics, cold storage, and data centers. Looking ahead, we believe that real estate demand and performance is likely to be uneven across property sectors and geography.
While key market central bank policies have remained supportive to growth, the possibility of rising inflation due to massive monetary easing has concerned investors. As such, bond yields have risen from the recent ultra-low levels. Yet, we believe that:
- Despite rising from their decades low, interest rates are still way below their long-term average levels
- If interest rate rises are truly accompanied by inflation, real interest rates are likely to remain low to support investment demand and pricing
- Rebounding economic growth could support stronger income growth outlook
- Current property yields spread over long term government bond yields are rich enough to absorb the initial rise in bond yields before materially putting pressure on expanding property yields
Figure 1 is a summary of investment themes and their real estate market implications in Asia Pacific in the short to medium term.

These themes are shaping different opportunities for investors with different risk appetites. We believe that the protection and creation of durable income streams and a sharp focus on structural drivers, e.g., digital transformation and demographics, are key to outperformance. With competition for prime assets becoming fierce, we could consider build-to-core in growth sectors to access quality assets. Counter-cyclical opportunities may arise in troubled sectors like hotels and retail. Assess opportunities for conversion of use or structured finance.
Figure 2 is a summary of opportunities we intend to pursue:
