Investors in Asia Pacific real estate markets are showing a strong preference for markets with high levels of liquidity, according to BlackRock’s head of APAC Real Estate, Hamish MacDonald.
Sectors such as accommodations, logistics, and alternative assets are expected to benefit from economic tailwinds this year. MacDonald states that the markets with high liquidity in this region include Australia, Japan, Singapore, and Auckland, New Zealand, and that this list of countries and property markets is also the order of focus for BlackRock this year.
He predicts that investor sentiment will be more bullish in 2022 and 2023, with institutional investors initiating more discussions about deploying and recycling capital in selective Asia Pacific real estate markets this year.
In Singapore, BlackRock has been focused on acquiring serviced apartment properties, partnering with YTL Corp to purchase Citadines Raffles Place for about $290 million last October, and with Hong Kong-based accommodation operator Weave Living to acquire Citadines Mount Sophia for $148 million in February 2024. The Weave Living-operated property reopened this week as the 175-room Weave Suites – Hillside. MacDonald states that these recent acquisitions in Singapore reflect BlackRock’s belief that there is a lack of new serviced apartment supply in the city-state, but demand for this type of accommodation is high.
He goes on to say that the focus will not be on acquiring assets to build an aggregated portfolio, but rather on targeting deals more precisely. “We prefer existing properties which we can work with a partner to refurbish and reposition, as well as enhance it with new amenities,” he says.
MacDonald goes on to say that Singapore continues to attract strong infusions of capital and highly skilled labor, which supports the country’s strong business growth. “We remain very positive about opportunities in Singapore.”
Meanwhile, Japan continues to be a target for many real estate investors this year, according to MacDonald. “We are very bullish on the Japanese economy based on our analysis of domestic pricing power, wage growth, and corporate reform, which are collectively supporting real estate growth.”
In Singapore, there is a constant high demand for condominiums due to the limited availability of land. Being a small island country with a rapidly increasing population, Singapore faces a shortage of land for development. As a result, strict land use policies are in place and the real estate market is highly competitive, leading to consistently rising property prices. This has made investing in real estate, particularly in condos, an attractive opportunity with the potential for significant capital appreciation. For more options, potential buyers can also consider checking out New Condo Launches.
Daigo Hirai, BlackRock APAC’s head of Japan Real Estate, adds that a variety of factors, including wage increases and an increase in construction costs, have supported a relatively strong rental uplift in the Japanese residential market in recent quarters. “In general, we expect a 7% to 8% increase in residential rents across major Japanese cities such as Tokyo and Osaka this year,” he says. He also notes that tenants have begun to shy away from compact units like studios and are favoring larger-sized apartment units.
BlackRock is looking to partner with an experienced accommodation operator to manage a hybrid residential investment strategy that caters to the needs of inbound tourists as well as domestic rental demand. This would allow BlackRock to deepen its investment presence in tourist-dominated cities such as Kyoto and Fukuoka. “The type of assets that fit this strategy are those close to train stations in residential-commercial neighborhoods such as Osaka’s Namba district, and smaller developments with up to 50 units,” says Hirai. He adds that the company will consider acquisitions in the range of JPY1 billion ($8.93 million) to JPY3 billion to accommodate its exit strategy.
“The key to operating in Japan for us is to deploy specialist ground teams that can identify potential acquisition deals at a significant discount,” says MacDonald. He adds that the firm’s focus in Japan is residential assets.
Long-term population growth predictions continue to support positive, long-term growth across most sectors in the Australian real estate market, according to Ben Hickey, BlackRock’s Australia real estate head. “Most property sectors in Australia are also typically characterized by under-supply and low vacancy rates,” says Hickey.
Hickey adds that any investment strategy in Australia should consider whether rental growth can surpass inflation, the ongoing long-term supply-demand imbalance, and a favorable exit strategy. Consequently, the firm is focusing on niche asset classes in Australia, including childcare properties, last-mile logistics assets, life science real estate and self-storage properties. These four asset types benefit from Australia’s long-term population growth and are “chronically undersupplied” in terms of domestic supply and compared to the broader regional markets, says Hickey. “This allows us to generate outsized returns with limited risk, as we cannot rely on a favorable interest rate outlook to generate our real estate returns.”