According to a recent report published on March 12 by PwC and the Urban Land Institute (ULI), low yields and slow transaction volumes have emerged as major concerns for property investors in the Asia Pacific (Apac) region.
The report, which gathers investor sentiment from global asset managers such as Blackstone, Savills Investment Management and CBRE Investment Management, revealed that over 70% of respondents listed low yields, high interest rates, and geopolitical tensions as the top three concerns.
Despite these concerns, the report notes that many industry leaders still find the Apac region attractive as a diversification strategy due to its population growth, demographic metrics and divergent monetary policies.
In 2020, real estate transactions in the region saw a 13% year-on-year increase to US$173.5 billion ($231.3 billion), surpassing the growth rates of other regions such as Europe, Middle East and Africa (EMEA) and the Americas.
However, as Europe and North America enter a new capital markets cycle with expected improvements in transaction volumes, Apac is expected to experience a slower pace of growth.
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In 2020, liquidity in the region was affected by a decline in transaction volume. This was particularly evident in China where transactions dropped by 25% to US$418.3 billion ($557.6 billion) and in Hong Kong SAR where transaction volume dipped by 1% to US$15.7 billion ($20.9 billion).
Meanwhile, investors in Europe have a different set of concerns, with 85% of asset managers citing international political instability, 83% citing a possible escalation of the war in the region, and 77% citing Europe’s economic growth as the top concerns for the region.
Data from MSCI, a leading US-based research and data analytics company, also showed that US commercial property prices stabilized in 2020 with a marginal decrease of 0.7%. This suggests that investors may divert their attention and capital towards Europe and North America in the coming months.
The report also highlighted that data center assets ranked the highest in terms of investment and development prospects in all three regions by 2025. According to research firm Green Street, global demand for data centers reached a record high last year, with asking rents growing at a double-digit pace.
In addition, MSCI predicts 2024 as a standout year for the asset class, with an expected increase of over 60% in the acquisition of existing data centers in the US through single property and portfolio deals.
In September 2020, Blackstone and the Canada Pension Plan Investment Board (CPP) acquired data center firm AirTrunk from Macquarie Asset Management and the Public Sector Pension Investment Board for a record-breaking US$16 billion ($21.3 billion). The deal, which was the largest commercial real estate deal in Asia Pacific and globally for 2024, further solidified the potential of data centers in the region.
With these trends in mind, it is likely that investors will continue to prioritize data centers in their investment and development strategies in the coming years.