Leading diversified professional services and investment management company Colliers (NASDAQ and TSX: CIGI) has revealed that quality office assets in major metropolitan markets like London, New York, Tokyo, and Sydney, have retained their allure and will be in high demand next year. Core and core-plus office spaces are the top global strategy picks, with 60% of investors stating these assets as their investment preference, while industrial and logistics (I&L) assets will be the most coveted.
Their appeal not only stems from the realisation that office demand is here to stay, particularly in cities supported by strong transport infrastructure and high amenity values, but also the ease of large-scale capital deployment that office assets represent. The rising cost of construction, viewed by four in five (81%) investors as a pain point, could limit new builds, renovations, and retrofit projects, amplifying the demand for existing quality office assets.
“Investments in the Indian real estate sector have remained resilient despite the headwinds triggered by the pandemic, adversely impacting the economy and business climate. For the nine months ended September 2021, investments were recorded to the tune of USD3.5 billion, almost 75% of the quantum seen in 2020. Favourable one-time bulk deals have been keeping the investment momentum strong in the last past few quarters. Interestingly, residential and industrial & warehousing sectors have emerged as major beneficiaries this year garnering a combined 36% of the investments. While the office will continue to remain a dominant sector, investments in residential and industrial & warehousing are likely to strengthen in 2022 aided by strong business fundamentals. Income visibility & stability, attractive valuations and identifying the dark horses will underline the investment ethos in 2022”, said Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers.
A standout year for Asia Pacific property investments
Across the Asia Pacific (APAC), more investors are prepared to put into action their ambitious plans that have been delayed by COVID-19. Cross-border capital flows are also likely to return, as travel and business activity progressively returns.
Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers India, added, “The pandemic has accelerated a number of structural trends and will have lasting changes on the nature of real estate business in India. This presents several opportunities for investors looking to future-proof their portfolios or recalibrate their strategy towards growth sectors. This is already evident in the rapid investment being allocated towards the Residential, increasing development of data centres, Industrial, Office as well as the evolution of the life science sector. Further opportunities exist in identifying locational trends based on changing consumer and work patterns and may also provide investment strategies to new markets in India”.
Overall, I&L assets will be the most sought-after real estate assets in the region, with more than 20% of investors anticipating capital value gains of 10%-20% in value-add I&L assets in 2022, supported by tailwinds and large-scale economic transformation.
Significant interest continues to surround core-plus offices, which remain a popular asset class for regional investors in Tier 1 cities like Singapore, Sydney and Tokyo. 63% of the respondents indicated that they plan to invest in these assets, versus 54% last year.
Multifamily/built-to-rent (BTR) properties are also an increasingly sought-after asset class, with investors targeting both core and development projects. In Japan, this is a sector that is well established and has long attracted foreign core capital, whereas in Australia, it is an emerging asset class with development opportunities.
Retail is for the opportunistic while specialised assets gain favour
Our survey shows that investors see significant potential for the appreciation and repurposing of retail assets. Around a third of the investors mulling retail allocations are targeting opportunistic (including change of use) investments. In addition, hotels are also an opportunistic target, with 38% of investors looking at this sector. Both hotel and retail sectors offer good opportunities in cities with large domestic markets, like Japan, Australia and Korea.
Specialised assets, particularly data centres, life sciences and healthcare, are expected to help boost investment volumes in 2022, with student housing also poised for a comeback as Australia, the region’s main market, opens up to international visitors.
“2021 has seen a strong investor appetite for emerging asset classes such as data centres and life sciences. Global data management firms, developers and alternative asset managers formed strategic joint ventures /platforms to develop and operate data centres in India. Also, investments in retail and mixed-use assets showed up on investors’ radar and formed nearly one-fourth of the total investments during the nine months ended September 2021 as they continue to scout for profitable and stabilized retail assets. Taking cues from Global and Asia-Pacific, green financing is expected to gain steam in the coming years as developers, asset owners and investors sign up for sustainable-led development”, added Vimal Nadar, Senior Director & Head, Research, India at Colliers.
ESG considerations are growing in importance to investors
The report also shows ESG (environmental, social, governance) considerations remain prominent, with nearly three in four investors surveyed globally integrating environmental factors into their strategies. This desire to invest with intent is both a means of future-proofing their assets and responding to the stakeholder and societal pressures requiring them to respond to the climate crisis.
ESG has also become a strong focus in APAC, as it will soon be a priority in the office sector as government and corporate tenants pressure owners to get their ratings up.