Will commercial real estate opportunities drive business progress?
26 Feb 20244 min read
Summary
- The article outlines how commercial real-estate (CRE) in Asia is increasingly positioned as a strategic driver of business progress rather than simply a cost centre. CRE assets are being leveraged to support evolving corporate needs in agility, talent attraction and customer experience.
- It highlights the growing relevance of specialised property types—such as high-quality offices, logistics parks and mixed-use campus models—that align with digital supply-chains, hybrid work models and omni-channel retail strategies. These assets are becoming core to companies’ competitive infrastructure.
- Finally, the piece notes that investors and businesses must adapt to the CRE shift by focusing on operational excellence, sustainability credentials and location optimization. Success will increasingly depend on how well real-estate supports broader enterprise goals rather than being treated in isolation.
Infrastructure investments, especially commercial real estate, ramps business expansion and management in Asia. These assets provide physical access to Business-to-Business and Business-to-Consumer means of doing business operations. Therefore, catering to a wider range of clients.
Moreover, the said initiative provides employment as businesses require a workforce. It’s also a way of entering or strengthening presence on a particular market.
One scenario is DHL’s 350 million euros-worth investment in Southeast Asia. They targeted their efforts towards the development of their warehouse capacity in regards to increasing their workforce to 3000.
In APAC, Private capital is expected to remain a driving force in the Asia-Pacific commercial real estate market. Global property advisory Knight Frank depicted this in its "Horizon: Asia-Pacific Tomorrow report."
Said report showcased private capital investment volume for high-net-worth individuals (HNWIs) in commercial real estate. They are expected to be on track to be the highest in five years. Wherein, the current market value is at USD 4.3 billion in 2023.
On HNWIs’ intentional initiatives
Certain HNWIs investors have been proactive in commercial real estate, raising their investment exposure in 2023, with decision-making guided by the pursuit of capital preservation rather than chasing yields.
With abundant cash reserves, reliance on debt for acquisitions is eliminated, enabling HNWIs to swiftly secure assets at competitive prices. Private capital is expected to persist as a driving force in the Asia-Pacific commercial real estate market in the higher-for-longer interest rate environment.
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“The sharp rise in bond yields has shifted the investment landscape and altered the appeal of different asset classes. However, despite the challenging macro backdrop, ample capital remains to be deployed. As markets have come to grip that central banks will unlikely ease policy for some time, assets will continue to re-price in the region. Opportunities for private credit and attractive entry points for assets are likely to emerge in the higher-for-longer environment, which will continue to favour long-term private investors with a low reliance on debt,” said Neil Brookes, Global Head of Capital Markets.
Opportunities continue to prevail in times of crisis
Market volatility has driven investors to prioritise stability, maintaining a conservative risk appetite and favouring core assets. According to an ANREV 2023 Investment Intentions Survey, nearly half of the respondents preferred core investment strategies, marking the highest level since 2014.
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“The extensive withdrawal observed from both domestic and international investors suggests a continued reluctance to deploy capital in the current high interest rate environment. The yield spread has tightened to an extent where certain markets are experiencing negative risk premiums.In the current inflated environment, competition is thinner as investors wait on the side-lines for headwinds to die down. Refinancing risks have also caused some assets to be put up for distressed sale. However, with the right strategy and opportune time, investors can still get their hands on favourable assets that offer capital appreciation and positive rental reversions, especially in thematic sectors such as living sectors, life sciences, and data centres, ” said Christine Li, head of research, Asia-Pacific, and report author.
Li added that the shift to a core strategy was expected because such assets are known for their stability, lower risk profiles, long-term appreciation, stable cash flow, and inflation hedge. All are advantageous in the current inflationary environment.
She noted that despite certain central banks in the region beginning to lower rates to stimulate economic growth, the likelihood of sustained elevated interest rates until the end of 2024 or early 2025 leads us to project that investors will maintain a strong interest in core assets to mitigate portfolio risks.
Tilt to core strategies to drive living sectors expansion
The nascent asset class is no stranger to investors as the market cap reached US$ 6 billion a decade ago, with Japan commanding the lion's share of capital as it is the only established multi-family market in the APAC region.
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“Given the lack of multifamily rental products in the region, investors are also exploring development options, particularly in the Australian build-to-rent (BTR) market, where it has quickly gained interest, and has the potential for largest stock expansion over the next decade. As many as 55,000 BTR units are expected to be delivered by 2030, almost seven-fold the existing inventory,” Emily Relf, head of living sectors of Asia Pacific, emphasized.
Meanwhile, last year, Hines, a U.S-based developer, acquired multifamily properties. They are in Tokyo and Kyoto. Said properties can experience a boost in value after five years, potentially at $1 billion.
For 2024, commercial real estate will continue to grow up to 3.49%. Statista’s data showed that the current stature of the market value is set toward $57.11 trillion by 2028.