LaSalle’s 2020 ISA: Targeted Real Estate Investment strategies in Asia Pacific

The outbreak of a new infectious disease, a slowing global economy, ongoing trade negotiations, high asset valuations, and disruptive technology may act as headwinds to favorable real estate performance. At the same time, low-to-zero interest rates, abundant liquidity, rising institutional allocation to real estate, improving real estate market transparency, and more measures for additional monetary and fiscal stimulus among major Asia Pacific – are all tailwinds driving favorable real estate performance in the region, according to LaSalle Investment Management’s Investment Strategy Annual (ISA) 2020. Our market sector recommendations for the Asia Pacific are more targeted for 2020 than prior years. Individual countries within the region may have different responses to these potential headwinds and tailwinds.

Uncertainty remains, as Asia Pacific contends with the trade tensions and exogenous shocks such as the Coronavirus (“CoViD-19”) outbreak. Drawing precise conclusion on the impact of the CoViD-19 outbreak on economic growth and real estate markets is highly speculative at this stage. There is a probability that the short-term impact of CoViD-19 on the Chinese and global economies could be greater than that of SARS, but the rebound/recovery could also be faster than that of SARS. It is still too early to determine and it depends on when CoViD-19 can be contained at a global level.

Nonetheless, there are many reasons for optimism. LaSalle believes that over the next two to three years, decelerating global economic conditions are most likely including in Asia Pacific. However, Asia Pacific is expected to rebound and remain the fastest growing region due to the region’s large population base, fast population growth, rapid urbanization, and its rising middle class. In particular, China remains a key driver of global economic growth over the medium and long term, despite short-term weaknesses.

Real estate, particularly income-generating properties, is favored by investors who are taking a defensive position. Strong liquidity and low-to-zero interest rates are expected to drive the attractiveness of real estate yields in multi-asset portfolios. The attractiveness of real estate is expected to keep prices high in the near term. However, as the economic slowdown weighs on real estate income growth, real estate prices are unlikely to experience substantial run-ups in the near term. In 2020, total returns are expected to decline from the past few years and be primarily driven by occupier fundamentals rather than strong price appreciation. Real estate occupier market supply and demand dynamics are increasingly important going forward.

Jacques Gordon, Global Head of Research and Strategy at LaSalle, said: “After 10 years of unprecedented, steady growth following the Global Financial Crisis, we anticipate that the next few years will bring more headwinds to the world’s real estate markets due to a progressively slowing global economy, ongoing trade and treaty disagreements, divisive domestic politics, high asset valuations and disruptive technology.”

He continues to explain, “However, we do not expect the generally positive current environment to quickly deteriorate due to a mix of macro tailwinds. For instance, low inflation, falling interest rates and balanced fundamentals in most developed countries create ideal conditions for real estate to thrive. And, while technology poses some level of risk, it also allows for more informed decision making and, in many cases, makes properties more attractive to their end users. Even if the potential for a sharp global reversal is unlikely, investors still need to proceed with caution and pay close attention to the macro forces driving each country and the micro-conditions for each specific asset in their portfolios.”

Elysia Tse, Head of Asia Pacific Research and Strategy at LaSalle, said: “This year our market/sector recommendations for the Asia Pacific are more targeted than those in prior years. We continue to favor the Japan real estate market, as current strong real estate market fundamentals in Japan, particularly in Tokyo and Osaka office markets, offer more room to cushion shocks or weaknesses in the near term.”

“We also see areas of relative strength, primarily in the Asia Pacific industrial sector with strong domestic consumption, the need for better designed and equipped facilities to handle the rapid expansion of e-commerce, distribution to major population centers, and rising demand for cold storage facilities to enable more efficient food processing and delivery to consumers.”

About LaSalle Investment Management 

LaSalle Investment Management is one of the world’s leading real estate investment managers. On a global basis, we manage approximately $77 billion of assets in private equity, debt and public real estate investments as of Q4 2021. The firm sponsors a complete range of investment vehicles including open- and closed-end funds, separate accounts and indirect investments. Our diverse client base includes public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from across the globe. For more information please visit www.lasalle.com and LinkedIn.

NOTE: This information discussed above is based on the market analysis and expectations of LaSalle and should not be relied upon by the reader as research or investment advice regarding LaSalle funds or any issuer or security in particular. The information presented herein is for illustrative and educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy in any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will only be made to certain qualified investors by means of a private placement memorandum or applicable offering document and in accordance with applicable laws and regulations. Past performance is not indicative of future results, nor should any statements herein be construed as a prediction or guarantee of future results.