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Asia’s REITs Likely To Maintain Dividends Despite Worst Performance On Record

Real Estate’s Recovery Seen Uneven In 2021; Logistics Still Favoured

Proptech professionals share their thoughts about real estate market fundamentals.

While the post-pandemic recovery of the real estate industry remains uncertain, experts who spoke at a REITAsiaPac Webinar held on December 10 were unanimous on one aspect: that the global health crisis will spur greater innovation and the adoption of technology.

Recovery across all real estate sectors will remain uneven in 2021, the experts said. Logistics will most likely continue to be an outperformer this year. Meanwhile, the retail and hotel industry will have to maintain operational flexibility to regain tenants after leases expire. The outlook for office occupancy, on the other hand, will be uncertain as remote working brings the prospect of smaller space requirements.

Across all sectors, the experts said property owners will have to rethink how they operate to evolve and adapt to the changing needs of tenants and the economy.

Here’s what they have to say:

(The comments have been edited for clarity and brevity)

Christina Tubb, Proxyclick APAC and Mideast Head

Departments are working more closely as silos are being broken down

There is increasingly a “better alignment between Human Resources (HR), Information Technology (IT), and workplace and facilities. I have seen a lot of companies where these silos have been broken down during the Covid pandemic as they are forced to work more closely with one another. Right now, we’re in the position where you’ve got 20 decision-makers instead of five.”

Traditional facility management is no longer adequate

“I think from a landlord perspective; they are becoming a lot more creative, which is good. The power has shifted more towards the tenant. About flexible leases — it’s a big shift. The whole idea of just having facility management, cleaning, operations, keeping the air conditioning on is not going to be enough to compete to have high yields and low spillage in the coming three years.”

Roddy Allan, JLL Asia Pacific Chief Research Officer

The short-term outlook for office rentals remains challenging

“I think it will be challenging for the office market in terms of rental returns. However, based on our forecasts, we do see a strong recovery for the office sector over the longer term. There’s scope for yields to further narrow in the office sector.”

 Retail spaces will have to evolve

“When it comes to malls in Asia, the region is underbuilt compared to others. The key trend will be the evolution of space. Landlords will have to be more agile in developing retail malls.”

 Logistics still has room to grow

“Logistics are performing particularly well. Within the next three years, APAC will account for 50% of the logistics market globally. We recently asked our investor group, and about 81% of the investors we spoke to intend to deploy more capital to logistics in the next 18 months. Last week, we asked the question: is it too late to put money into logistics because everyone’s targeting logistics? And emphatically, that group said no. So, I think there are definitely opportunities still for investment into logistics properties.”

Deng Yuying, Chief Executive Officer at Esevel

The extent of remote working post-pandemic is uncertain

“I think the pendulum has really swung towards remote working during the Covid pandemic. And I think that the pendulum will swing back, once the Covid vaccine proves to be effective because people may be tired of working from home and will want to see their colleagues again. The question in the next two years is where will the pendulum eventually rest. Will it swing back towards the office or will it swing back towards working from home. I think that the big test comes when leases are due. As we all know, corporate leases are long, so a lot of companies are still locked into their leases. So as the end of the lease approaches, do companies increase their office space, do they keep it the same or do they actually decrease it? I think that will be the big test.”

Office space formats must adapt and evolve

“I think that in central business districts (CBD), if enterprises can find ways for their offices to exist in new formats, for example, a clubhouse-type concept or collaborative spaces, then office space in the CBD might not be impacted that much, at least in the short to mid-term. I also do think that there are opportunities for satellite offices and for flexible spaces to go out into the suburban areas as well.”

Bernie Devine, Yardi Regional Director

Questions remain on which sector’s recovery is sustainable

“There’s no question that, particularly for Asia Pacific, data centres and logistics are really going to continue to be very strong sectors. For retail and office, both have some challenges, mainly because of uncertainty. No one really knows yet how it’s going to play out, so I think a lot of investors are hanging back a little. The braver investors are probably saying ‘we’ll get into those sectors because we know they’re going to recover’, but the question is by how much, when and how sustainable is that given other changes structurally?”

Landlords need to be flexible going forward

A critical factor “from a landlord’s perspective generally is the ability to be agile and flexible. The ability to say, ‘yes, I can handle that type of lease’; for a retail mall owner to say, ‘yes, I can do a lease where I share some of my truck turnaround and loading bay with a logistics facility’ or ‘yes I can do a service office type lease.’ The ability to be flexible and agile, not just in terms of your people and expertise but also in terms of your systems and processes.

Christian Bernasconi, B&I Capital Managing Director

Investment into logistics has risen, causing oversupply concerns

“Every incremental dollar is going into logistics or even into DC, from investors in Europe and the US. Nothing is going into retail. Supply does create imbalances. A bigger concern I have is that we do get too much capital rushing in. We have seen cap rates compressed. In the US, cap rates for logistics are about where they are for office properties. That wasn’t historically the case.”

Potential for repricing of Covid-impacted sectors after normalisation

The crisis has limited the “development of other types of assets, so I think you’re not seeing people developing malls. You’re not seeing neighbourhood shopping centres being developed. It’s very hard to raise capital to do so. Banks probably don’t want to lend there, ditto for hotels and so that should bring us back into some equilibrium going forward for the next two years.”

In two years, as we get closer to a vaccine and more normalisation, I think we will probably see, at least in the public markets, a repricing of the more Covid-impacted sectors. Not that industrial and data centres won’t do well; it is just that I think the others will start to recover.”