Aurex Insight – APAC Real Estate

Half Year 2019

APAC Real Estate Half Year Review

Welcome to Aurex Group’s market review for Real Estate professionals across APAC. The first half of the year has not only seen notable developments within the market but also Aurex Group, strengthened connectivity across the region. With our APAC leadership team now based in Sydney, Singapore and Hong Kong, we have on-the-ground relationships and impact with capital providers, investors, occupiers, agents and developers, ensuring we bring you a balanced and informed assessment of the opportunities in the market.

Regional Overview

Taking a macro look across the Asia Pacific region, the first two quarters have delivered an eventful start to the year. The market has experienced positive year-on-year growth in new equity raised for non-listed real estate funds in APAC since 2015.1n tact, This period has seen the highest capital raised for private real estate funds globally since the Global Financial Crisis (GFC).Ascording to a report by PERE, the surge is largely due to the rise of the ‘Mega’ fund, categorised as anything In excess of US$5 billion. A further 17 funds surpassed the US51 billion threshold to close out H12019.

From a recruitment standpoint, we see strong growth continuing in the industrials and logistics asset class across every market in APAC. Private equity backed investors and operators as well os Institutional core funds seeking overweight positions, have put pressure on value across these markets. Industry commentary suggests the second half of the year will continue along this trajectory.

Greater China reaches new investment highs

As expected, China proves again to be a hotbed of activity. In the first three months of the year, commercial investment in APAC reached US$45 billion, a new quarter high according to JJL research². Over 40% of this investment was in China. Much of the activity was generated by local investors forced to divest due to the Chinese government, focus on deleveraging. Interestingly, while Shanghai slowed slightly to realign against an oversupply, Beijing and Shenzhen saw a generous amount of international capital.

China attracts 40% of US$45 billion investment in APAC real estate markets

From Aurex Group, discussions with several senior executives in the industry, general sentiment is for China to have a milder second half of the year, propped up by transactions in the office and hotel sectors. The logistics and industrial industry remain hot; however, supply will continue to be the main Issue affecting these areas. Local knowledge and the ability to acquire land for new build will remain competitive advantages for investors and developers.

These conditions explain why more international investors are looking to enter into joint-venture (JV) vehicles with local developers and Investors who are already dedicated to the market. There also remains a greater level of interest to invest in property companies at an entity level, rather than an asset level, due to the attractiveness of their debt.

Recruitment Lens : Recruitment of well-networked local candidates with the ability to originate deals and leverage government connections will be sought after for investors across the industrial asset class. Demonstrating a track record and transaction experience will be fundamental for candidates seeking opportunities with international investment organisations. Candidates who have seen deals through to closure can utilise their experience to advance their careers and find opportunities across a broader range of platforms or within managerial functions.

Singapore surprises with Real Estate buoyancy

While Singapore’s economy posted a contraction in Q2, data coming out of the real estate markets has proven more favourable. The recent sale of Duo Tower and Duo Galleria, for S$1.6 billion testifies to Singapore’s attraction to investors. Looking first at the commercial market, Grade A office soles year-to-date in 2019 have outperformed the last three calendar years combined. Value added transactions have seen a marked increase across both office and retail with investors strategically moving beyond CBD locations.

Several moves within the leading global services providers have generated excitement in the market

Singapore’s Duo Tower and Duo Galleria

As in China, the industrial and logistics industry remains a strong interest for many of the global core fund managers seeking overweight positions in the space. For H1 2019, the industrials market continued at pace, CBRE reporting that sales in Singapore and across Southeast Asia showed strong growth. Interestingly, self-storage gained attention from both global and Asia private equity real estate investors looking to develop specialist strategies in the sub-sector. Expect to see an upturn in transactions for operators and assets within this segment, and those alike, for the remainder of 2019.

Singapore’s 3.4% reduction of its the annualised GDP has left some analysts concerned for the second half of the year. Given the city state’s strong trading and shipping industries, Singapore is often considered the bellwether of international trade volumes. Global markets will be closely monitoring Singapore’s economy for the remainder of 2019 as it threatens to lurch into a period of technical recession.

Recruitment Lens : Professionals within the Singapore Real Estate market will note that the conditions have remained surprisingly buoyant despite the slowed economy. Global private equity backed logistics investor-operators are competing with similar strategies within listed real estate and emerging markets expansions; creating positive pressure on the talent pools across investment, asset management and corporate functions. Structural changes, fund strategy diversification and changes in executive leadership also continue to positively affect the global institutional fund managers in Singapore. Several moves within the leading global services providers have generated excitement in the market.

Predictions show their worth in Australia

Following the regional trend, Australia has seen an active first half of 2019 far real estate investment. This has not come as a surprise as ANREV predicted Melbourne, Sydney and Japan as the key markets for investors to place their capital in their first quarter. These predictions have manifested, for example, with the sale of 80 Collins Street in Melbourne, the remaining half stoke of MLC in Sydney and the acquisition of the Investa office fund by Oxford Properties for AU$3.4 billion.

While activity has been slow within the retail sector, confidence in prices coming off could make this a market to watch. International retail groups looking to gain a foothold in Australia and domestic investors looking to take advantage are the two investor groups keeping a sharp eye on potential movement. For industrial and logistics, appetite remains strong and we have seen a lot of speculative industrial development in Melbourne.

From an economic standpoint, the Australian market is in somewhat of holding state. The government is still trying to stimulate the economy through tax cuts and another potential rate drop potentially due to take effect in November. The lower Australia dollar continues to attract capital to the property sector. As reported by CBRE, continued Inconsistency in the domestic banks will create further opportunity for alternate debt providers offshore.

Recruitment Lens : Companies seeking candidates with experience in alternate asset classes such as multi-family, retirement living and self-storage is a trend we continue to see this year. As Australia is a real estate debt market destination, experience in real estate debt financing is an attractive skill set which is driving demand from clients at all leveIs. Sydney remains the hot spot however and overall salaries have remained stagnant for much of 2019 with no major fluctuations anticipated for the second half.

Companies are seeking candidates with experience in alternate asset classes

80 Collins Street, Melbourne

Opportunities for candidates in 2019

With the second half of the year already upon us, we are suggesting professionals take stock of their current positions in line with the major trends we are seeing across the region. For a discussion about where your experience fits within the market or to understand the latest hiring trends, please contact our Real Estate leaders below.

References:

  1. Brase, J. and Humphrey Rodriquez, D. (2019). Fundraising Report H1 2019. PERE.

  2. Hatton, J. (2019) China Drives Record $45B in APAC Commercial Real Estate Investment. Mingtiandi.

  3. CBRE (2019) Capital Markets Half Time 2019. CBRE. [Online Video].

  4. Delaunay, A. (2019). Investment Intentions Survey 2019. ANREV.

  5. Brase, J. and Humphrey Rodriquez, D. (2019). Fundraising Report H1 2019.

APAC Real Estate Leadership Team

Ben Watt

Sally Tremlett

Chris Kiernan

HONG KONG

Level 15, 8 Lyndhurst Terrace

Central, Hong Kong

 

+852 3796 2621

HOUSTON

708 Main St, 10th Floor

Houston, TX 77002

USA

+1 832 532 2524

SINGAPORE

12 Marina View, #11-01

Asia Square Tower 2

Singapore 018961

+65 3165 4450 | EA 1859493

SYDNEY

Level 28,161 Castlereagh St

Sydney, NSW 2000

Australia

+61 2 9159 0600