Investors are showing a strong interest in Asia Pacific real estate markets that have high levels of liquidity, according to Hamish MacDonald, head and chief investment officer of APAC Real Estate at BlackRock.
This year, the property sectors likely to benefit from economic tailwinds are accommodation, logistics, and alternative assets. MacDonald notes that this trend is evident in countries with strong liquidity, such as Australia, Japan, Singapore, and Auckland in New Zealand. This is also the order of focus for BlackRock this year, according to MacDonald.
He also believes that investor sentiment will be more bullish in 2021 compared to the previous years, with institutional investors initiating more discussions on deploying and recycling capital in selective Asia Pacific real estate markets.
In Singapore, BlackRock has been focusing on acquiring serviced apartment properties. Last October, the company partnered with YTL Corp to acquire Citadines Raffles Place for about $290 million. In February 2024, it also teamed up with Hong Kong-based accommodation operator Weave Living to purchase Citadines Mount Sophia for $148 million. This week, the Weave Living-operated property reopened as the 175-room Weave Suites – Hillside.
MacDonald explains that these recent acquisitions reflect BlackRock’s belief that there is a lack of new serviced apartment supply in Singapore, while demand for this type of accommodation remains high. However, the focus will not be on acquiring assets to build an aggregated portfolio, but on targeting specific deals. “We prefer existing properties which we can work with a partner to refurbish and reposition, as well as add value with new amenities,” he says.
Singapore continues to attract strong inflows of capital and high-skilled labour, which accompanies the country’s robust business growth, notes MacDonald. “We remain very positive on opportunities in Singapore.”
MacDonald also believes that Japan will continue to be a target for many real estate investors this year. “We are bullish on the Japanese economy, based on our analysis of domestic pricing power, wage growth, and corporate reform, which are collectively supporting growth in real estate.” Hirai adds that a combination of factors, including wage increases and an increase in construction costs, has supported a relatively strong rental uplift in the Japanese residential market in recent quarters.
BlackRock is eager to partner with an experienced accommodation operator to manage a hybrid residential investment strategy that caters to both inbound tourist accommodation needs and domestic rental demand. This will enable the company to deepen its investment presence in tourist-dominated cities such as Kyoto and Fukuoka. Hirai explains that this strategy would focus on assets close to train stations in residential-commercial neighbourhoods, such as Osaka’s Namba district, and smaller developments with up to 50 units. He adds that the company would consider acquisitions in the range of JPY1 billion ($8.93 million) to JPY3 billion to accommodate its exit strategy.
MacDonald notes that the key to operating in Japan is deploying specialist ground teams that can identify potential acquisition deals at a significant discount. He adds that the company’s focus in Japan is residential assets.
Ben Hickey, head of Australia Real Estate at BlackRock, explains that long-term population growth estimates continue to support positive long-term growth across most sectors in the Australian real estate market. “Most property sectors in Australia are also typically characterised by undersupply and low vacancy rates.”
According to Hickey, any investment strategy in Australia should evaluate whether rental growth can surpass inflation, the ongoing long-term supply-demand imbalance, and a favourable exit strategy. Consequently, the company is concentrating on niche asset classes in Australia, including childcare properties, last-mile logistics assets, life science real estate, and self-storage properties.
Hickey notes that these four asset types benefit from Australia’s long-term population growth and “chronically undersupply” in comparison to the broader regional market, allowing BlackRock to generate outsized returns with limited risk. “We cannot rely on a favourable interest rate outlook to generate our real estate returns.”
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