Property Investors Identify Asia as the Hot New Frontier for Alternative Real Estate Growth

International property consultants say that there has been a shift among real estate investors to alternative assets in Asia Pacific which offer more attractive yields and stronger long-term growth prospects.

According to Rohit Hemnani, Head of Alternatives, JLL Asia Pacific, the alternative real estate market in Asia Pacific is still not as mature as the Western markets, yet investor interest is growing because of the promise of asset diversification and enhanced returns.

The long-term lease structure of alternative assets in the Asian markets assures a more stable income stream and reduced risk of market volatility, he says.

Yields on alternative assets such as data centers in Singapore and Tokyo range between 6% and 7%, significantly higher than those for core assets such as shopping malls and office buildings.

Global investors inclined to favor such alternative property investments include equity funds, REITs, real estate operators and developers, and investment managers.

These five investor groups poured in more than $43 billion into the sector in 2016 alone.

A similar trend is now noticeable in Asia Pacific. REITs are particularly active in Asian markets, such as investments in Japan for elder care.

The JLL report says that the alternative real estate market in Asia Pacific will continue to build momentum because of major demographic shifts, such as an aging population, rapid urbanization, rising income levels, and growing use of technology.

Alternative asset classes such as self-storage and education facilities stand to benefit from urbanization in Asia Pacific. By 2027, the urban population in the region will be more than 400 million.

Demand for data centers is set to surge with additional 560 million Internet users to be added to the region in the next decade.

Demographic trends

The aging population in Asia Pacific, meanwhile, is expected to rise by 146 million during the same period, which will boost the expansion of nursing homes and senior housing, and also robots and devices to help them live comfortably in a somewhat dependent state.

International schools in Asia are expected to grow by three to four times in size to accommodate additional 10 million students over the next decade.

This will create demand for student accommodation and educational facilities.

Extremely low property yields and record high prices in markets such as Hong Kong, Singapore, and Japan are driving investors towards alternatives in big numbers.

In 2017, the US PE firm TPG made an investment of $140 million in an international school with campuses in Vietnam. GIC, the sovereign fund of Singapore, invested in student housing in Australia.

In addition to the attractive returns, investors are lured by the stability factor in the alternatives market.

Operating leases of schools, aged care homes, and data centers typically extend over 20 years. This creates a stable, long-term income stream that reduces the impact of market volatilities.