1 in 2 investors expect APAC real estate investment to recover in H1 2021

Japan, Australia, South Korea, and China likely to see more transactional activity into 2021.

Asia Pacific real estate investment volumes are expected to rebound in the first of half of 2021 as investors continue to weigh up current market uncertainties due to the COVID-19 pandemic. According to global investors surveyed by JLL, economic uncertainty resulting from COVID-19 is providing challenges when deploying capital, prompting investors to reimagine Asia Pacific strategies to focus on core geographies and further accelerate pre-COVID trends.

Around 84% of survey respondents expect transaction volumes to recover by the second half of next year. Deeper analysis shows 32% expect recovery in 2H 2020, while 52% expect recovery in 1H 2021. Nonetheless, with an expected recovery over the next six to 12 months, many investors have identified Japan, South Korea, China and Australia as the markets most likely to observe an increase in transactional activity into 2021. Asia Pacific real estate transaction volumes totalled $52.9 billion in the first six months of 2020, representing a decrease of $40.3 billion from the same period in 2019, according to Real Capital Analytics.

“Our interactions with clients reinforce the view that investors will continue to seek defensive locations and sectors where the rental collection experience has been positive. Japan and Korea remain high on the preferences for clients, as do sectors such as multifamily, non-discretionary retail and logistics. As transactional activity increases and pockets of value emerge from the crisis, we expect investors to move up the risk curve,” says Stuart Crow, CEO, Capital Markets, Asia Pacific, JLL.

In the third quarter of 2020, an unpredictable environment remains the biggest challenge in deploying capital, say investors. Approximately 60% cited uncertainty as driving a pause in their transaction activity. Specifically, underwriting assumptions, rent assumptions, vacancy forecasts, cost of capital and pricing uncertainty were cited as the primary reasons stopping investors deploying capital in the current environment.

As investors review their Asia Pacific strategies, JLL expects several key themes to gather momentum into 2021:

• COVID-19 accelerating pre-existing trends: Investors are planning to increase their exposure to logistics (81%), multifamily (58%), and alternatives (44%) between now and the end of 2021.
• Focus on capital value preservation: 82% of investors are planning to retain or increase their exposure to the core sectors, such as offices, by the end of 2021 with only 6% expecting to reduce their exposure.
• Going beyond core: While core sectors remain central to strategies, investors also plan to increase their activity in the core plus by 42% and value add segments by 49% in 2021, due to both the limited opportunity to acquire assets and a rebalancing of relative risk and volatility.
• Transactional diversity to mature: Direct acquisition in private markets will remain the primary route for most investors, but many are increasingly looking towards different transaction structures in order to gain and increase their exposure to real estate. 32% of respondents are planning to increase exposure to platform or entity deals, while 29% plan to increase their activity in debt markets.

“COVID-19 is changing how investors access real estate. While we typically see a shift to more stable risk profiles during times of uncertainty, many investors are signaling not only a longer-term diversification strategy in Asia Pacific but are also reimagining how they transact in this region,” says Roddy Allan, Chief Research Officer, Asia Pacific, JLL.

JLL surveyed 38 global investors collectively holding close to $2 trillion of assets under management.