LaSalle’s 2021 Outlook: Relative Strength in Asia Pacific Real Estate Markets while Uncertainty Lingers

Asia Pacific has come through the pandemic in stronger shape than any other region to date. Uncertainty will remain a dominant theme in 2021, although there are signs of bifurcated economic and real estate market performance in the region, according to the LaSalle Investment Strategy Annual (ISA) 2021.

China, in particular, is exhibiting a V-shaped recovery amid the pandemic-led recession. The success of the region can be largely contributed to the role of governments, high trust in local institutions, ultra-accommodative monetary policies, and the record size of fiscal stimulus packages in major Asia Pacific countries. The vaccine deployment in the region is also expected to further support the recovery. These stabilizing influences accompanied by trends we have identified in the past—the rise of intra-regional trade and the steady rise of transparency—help reduce the effects of post-pandemic uncertainty.

Countries with relative success in keeping the pandemic under control, a significantly large domestic demand base, effective monetary and fiscal stimulus packages, and room for more stimulus are expected to lead the economic recovery in the region. The ranking of the relative strength of major Asia Pacific economies in a post-pandemic outlook has China leading, followed by Japan, South Korea, Singapore, Australia, and Hong Kong. This reinforces our conviction that domestic and intra-regional recovery in Asia Pacific will contribute more to the economic recovery in the region than external influences from outside the region.

Real estate sector shift

The pandemic has accelerated the shift toward online retailing, enhancing the strong demand for logistics. The increase in logistics transaction volume has primarily been at the expense of the retail sector. The robust investor demand for logistics facilities across the globe and in the Asia Pacific region in recent years is expected to expand the investable universe of the sector in 2021 and beyond. The pandemic has also accelerated the attractiveness of multi-families in Japan, the only institutionalized multi-family market in Asia Pacific, and the rise of the multi-family sector in the rest of the region, for example China. The ongoing sector shift is likely to drive investors, particularly asset allocators, to broaden their real estate portfolios to include more logistics and multi-family assets in Asia Pacific as a way to complement other property types.

Jacques Gordon, Global Head of Research and Strategy at LaSalle, said: “In the 2021 edition of the ISA, our advice for investors is to hold the course. On the other side of the pandemic lies a landscape that real estate investors will recognize, even if it will also be different in surprising ways. The strength of the post-vaccine recovery could be one of those surprises. The secular trends we follow have been simultaneously accelerated and interrupted, and as a result, we undertake a global look at the future of the mainline property types, while also focusing on the rise of viable alternatives.”

Keith Fujii, Asia Pacific CEO at LaSalle, said: “Compared to other regions around the world, several Asia Pacific countries have been the first to be on the path of economic recovery. That means we will continue to see strong investor appetite this year for Asia Pacific real estate, particularly in Japan with sustained resiliency and China where the economy and property markets are rebounding. The shift to digital commerce is expected to continue in 2021 and so will the capital flows into logistics assets in the region. Broad-based distress is unlikely in the region, but there’s potential for some distressed or repricing opportunities from financially challenged developers and asset owners.”

Elysia Tse, Head of Asia Pacific Research and Strategy at LaSalle, said: “The future of office properties has been the most debated among major property types globally. We believe there are a few key areas that differentiate major office markets in Asia Pacific. First, the human behavioral influence on tenant occupancy decisions – the progress of returning to the office has been the most advanced in Asia Pacific – the sooner people can and are willing to return to work in their offices, the lesser the permanent impact of remote working on the future of offices. Second, a cultural element, face-to-face meetings in a formal office setting represent high business value and are viewed as essential business rituals in countries such as China, Japan, and South Korea. Third, the relatively small residential unit size in several highly urbanized Asian cities, for example in Japan, makes working from home challenging in the long term. One of the key values of physical office space is collaboration. Despite the relative success of working from home, it is likely to be one of the options, but not a permanent replacement for office space in major Asia Pacific markets.”

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