ADAPT TO STAY RELEVANT, CHANGE OR BE CHANGED
BY Zoe Phoon
The 2017 ULI Asia Pacific Capital Markets Forum held in Singapore recently drew 40 leading executives from the world of real estate capital markets and investing where they brainstormed topical issues facing the industry.
According to a report by US-based Urban Land Institute (ULI), four main themes emerged.
First, the long-term prospects across the Asia Pacific region remain positive but the short-term challenge is finding enough attractive opportunities.
An analysis of industrial fundamentals shows rents in most markets remain on an uptrend, fuelled by higher salaries and ongoing demographic change.
Strong economic data have helped boost demand for space in China, Japan and Australia.
Meanwhile, emerging markets like India, Vietnam and the Philippines are seeing growth rates higher than 6%.
The structural story that has underpinned Asian property markets for the past two decades seems to endure for at least 10 years more.
This growth dynamic has drawn fund managers in the West, especially from Europe with European pension funds and insurance companies looking to place capital in Asian markets.
They are faced with shrinking returns on local assets, limited prospects for economic recovery and an imperative to diversify to mitigate risk.
The second theme is European capital is now returning to Asia Pacific in a big way with growing collaboration between Asian and European institutional investors.
A nascent trend is for European and Asian funds to team up to leverage expertise in their respective markets.
On the third theme about growth versus yield, the ULI report said growth is the catalyst that investors must rely on to reach targets for returns in the current environment.
But investors must also take into account the prospect of rising interest rates.
Today, however, the focus is shifting, with investors gravitating towards assets providing reliable yields rather than big returns for a number of reasons.
Also discussed was the range of risk and return options in office markets.
The forum participants said the real estate yield spread over bonds is still wide and that moderate growth for prime office rent is expected.
The fourth theme is technological disruption is about to arrive in the real estate sector, creating opportunities as well as challenges.
Artificial intelligence, robotics, 3D printing and driverless cars all will affect the way investors conduct their future business.
On innovation and technology, the ULI report said one rapidly evolving tech theme involves the changing patterns of office use.
One fund manager observed that many landlords who remain stuck in the traditional industry paradigm of large space and long leases are likely to be tripped up without a change in approach.
To stay relevant today, we have to be able to adapt the space for a different type of use.
Otherwise, you will find you get to the end of those traditional leases without a replacement tenant and with significant empty spaces.
Tenants are not leasing those large-lot spaces anymore. They are distributing the workforce or cutting space. This is just office space alone.
Changes are also seen in the retail sector already in the crosshairs of online retailing as consumer buying habits continue to shift, the fund manager added.