Industry experts from APG Asset Management, Baker McKenzie, JLL and MSCI see Asia Pacific’s office sector continuing to provide attractive investment opportunities, while pointing to emerging segments like life sciences as sources of enhanced yield in the face of a broader slowdown.
Speaking at this year’s Mingtiandi Asia Office Strategies Forum on Thursday, Tim Graham, executive director and head of international capital for Asia Pacific at JLL, said office cultures in the region have proven to be more stable than in Europe or the US with office utilisation now at around 80 percent of pre-pandemic levels in some parts of Asia, compared to 50 percent in the US and around 75 percent in Europe.
“We definitely have a little more stability here in terms of the future of work, it (the office) is also where culture tends to be based and grown as a business. Even when you look at some of the businesses that built their companies on working from home, like Zoom, their CEO is now mandating a structured hybrid approach to come back into the office,” Graham said. “We think that the traditional core office building is well set, particularly here in APAC.”
While office owners in Asia may be better off than their counterparts in Europe or the US, investors are having to be more careful in picking their locations this year, or are moving to quickly come up to speed with occupier requirements and industry specifics for specialised sectors like life sciences, the panellists said in the session, which was sponsored by Yardi.
Uneven Recovery
“Investors are definitely a little bit spooked by the office market at the moment globally, but at the individual country level, it’s a slightly different story,” Green-Morgan told the forum.
Tim Graham, Executive Director, Head of International Capital, Asia Pacific, JLL
David Green-Morgan, Global Head of Real Assets Research, MSCI
Dominic Doran, Director, Private Real Estate, Asia Pacific, APG Asset Management
En Lai Tan, Local Principal, Baker McKenzie Wong & Leow
Across the region, the Australian office market has lagged some other economies as companies struggle to get employees to return to the office, while locations like India continue to attract capital as tech-centric employers add to their workforces, Green-Morgan said.
Strong fundamentals in Seoul and low borrowing costs in Tokyo are also drawing office investors to North Asia’s two largest markets, he added.
Singapore also remains a highly sought after market in Asia Pacific, according to En Lai Tan, a local principal with Baker McKenzie Wong & Leow based in the city-state, although the veteran advisor cautioned that availability in the Asian financial hub remains limited as many local investors hold their properties for the long term.
“It pays to be patient, to find a good entry point,” Tan told the panel. “Having spoken to a lot of our clients, I think they (investors) are still marking the office sector as their investment focus for Singapore and the APAC region for this year so [it] seems pretty robust.”
Life Sciences in Focus
With rental yields compressing in many Asian markets, global investors are diversifying their office portfolios to include life sciences, in markets where industry demand for the specialised real estate sector has begun to develop.
APG Asset Management in 2021 invested $400 million in a China life science real estate venture with Singapore’s CBC Group, with Dominic Doran, a director with the Dutch pension fund manager seeing select opportunities to expand the firm’s bets on the sector.
“The tricky part has been unlocking these opportunities, doing it at scale, and also understanding the underlying tenant base,” Doran told the panel.
With the venture with CBC having taken on one project each in Beijing and Shanghai to date, Doran explained that Asia’s favourable demographics and rising healthcare spending, along with increasing demand for quality facilities from the pharmaceutical industry, provides rewards for investors willing to learn the market.
“It’s been a very steep learning curve, understanding why tenants really need the space, why they need to rent the space, as opposed to wanting to own it and run it themselves,” Doran said. “It’s going to take some time, but we’re excited by it.”
With startups and other high-growth companies accounting for a larger portion of the pharmaceutical industry, Doran said APG sees future opportunities to provide facilities to life science firms which prefer not to develop and own their facilities.
For investors looking to enter the sector, JLL’s Graham said teaming up with life sciences firms to pursue sale and leaseback transactions may be the easiest way into the industry for core investors.
Those seeking higher returns may also consider acquisitions of older facilities for asset enhancements, or repositioning of existing commercial facilities for life science use as value-add plays.
Value-Add Up Next
MTD TV Asia Office Strategies Forum will be back at 10:00 AM Hong Kong time on Tuesday, 24 October with a panel focused on value-add and opportunistic strategies.
For that session, Mingtiandi has invited Daisuke Hayashi, a partner and Japan chief representative with Phoenix Property Investors; Gauri Shankar Nagabhushanam, CEO for India Business Parks at CapitaLand Investment; Hari Krishna V, a managing director for real estate with CPPIB who is also a member of the firm’s global leadership team; and Josephine Yip, senior director for investments and asset management for Asia Pacific at Ivanhoé Cambridge.
Concluding the three-part series is a panel on the future of the office on Thursday, 26 October where experts with experience in acquiring, managing and designing offices will share insights on keeping workspaces relevant to investors, occupiers and employees in Asia Pacific. The discussion will also include rising demand for sustainable workspaces and flexible offices in the region.
Speaking on the panel will be George Goh, head of acquisitions and asset management for Southeast Asia at LaSalle Investment Management; Bernie Devine, senior regional director for Asia Pacific at Yardi; Leonie Wilkinson, senior vice president for portfolio management with Brookfield Asset Management; and Terence Seah, a director who serves as head of Hong Kong, Singapore and Shenzhen for international design firm Benoy.
Following the office strategies forum, Southeast Asia’s top real estate market will be in focus on 14 November at the Mingtiandi Singapore Forum.
In that 200-person event, attendees will hear from speakers representing Ivanhoe Cambridge, Oxford Properties, APG, Warburg Pincus, Gaw Capital, TE Capital and ESR.
Early-bird pricing for the Singapore Forum ends on Friday 20 October and tickets are available here.
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