Asia Pacific's overall real estate transaction volumes in 2019 are expected to rise by 5%, though the pace of growth momentum will slow down, according to global real estate consultant JLL.
"A decade into the economic cycle, investors are contending with macro risks and geopolitical uncertainty such as rising interest rates, continued trade tensions between the U.S. and China, as well as strains in the EU caused by Brexitnegotiations," said Stuart Crow, Head of Capital Markets, JLL Asia Pacific.
"Against this backdrop, real estate continues to look attractive as a safe haven for investments, with its portfolio diversification benefits and relatively higher returns compared to other asset classes. However, in this late-cycle environment, investors are becoming more selective and disciplined in exiting investments because it is getting harder to find income-producing alternatives."
According to Ramesh Nair, CEO and Country Head, JLL India, "The government's focus on improving infrastructure, lowering policy hurdles to streamline project approval processes, improving ease of doing business along with rising levels of occupiers' interest, and regular flow of capital has made Indian real estate lucrative for investments. This trend is likely to continue in 2019 as well."
In the Asia Pacific, real estate demand will continue to be driven by its strong demographic fundamentals. Asia Pacific region's urban population is expected to exceed 400 mn by 2027, while the population aged 65 and above will rise by 146 mn within the next 10 years.
According to JLL, following are the 5keytrends that will shape the industry in the Asia Pacific, including India, in 2019.
1. Growth in 'living' assets
Asia Pacific's increasing urban population has seen a growing demand for alternative residential arrangements, including student accommodation, co-living, multi-family, nursing homes, and aged care. For investors, these living sectors offer attractive yields and long-term growth prospects as well as an opportunity for portfolio diversification.
"Besides affordable and mid-segment housing, segments such as student housing and co-living are increasingly attracting investors. With a millennial population of over 400 mn, these housing models hold significant potential in the Indian market," said Nair.
2. Building flexible spaces to attract talent
Businesses are increasingly using shared workspaces as a way to foster innovation among employees and win the war for talent. This renewed focus on building human experiences has led to an uptick in flexible offices – including co-working and serviced offices – across the region.
In India, the concentration of co-working spaces is likely to intensify further in cities such as Bengaluru, Mumbai, and Gurgaon due to the availability of good infrastructure and strong start-up ecosystem. According to a recent JLL India report on Emerging Trends in India's Office Sector - An Occupier Perspective, space absorbed by co-working service providers increased three-fold to 3.44 mn sqft during Jan-Sep 2018 compared to 1.11 mn sqft year ago. Currently, there are around 350 co-working players/service providers operating an estimated 500 shared workspaces across the country, compared with less than 30 in 2010.
3. Rise of logistics and data centers
With the Asia Pacific leading global e-commerce adoption, there is rising pressure for organizations to establish their data storage infrastructure as well as warehousing facilities for physical retail goods.
"Telecom companies shedding data centers and focusing on their core competence, cyber security, a growth of content providers, outsourcing by startups, and regulators focus on keeping data within India are major factors for the growth of a market for data centers in India. These along with the Government's Digital India campaign that aims to transform the country into a digitally empowered economy is expected to push greater demand for quality data centers," Nair observed.
"The robust rate of consumption is driving increasing investor interest in data centers and logistics in the Asia Pacific. These sectors will continue to expand, with significant capital targeting emerging markets like China, India, and Indonesia,” Crow added.
4. Shift towards debt exposure
With banks tightening their lending criteria, this leaves a gap for non-bank and offshore lenders to enter the market, particularly in Australia, India, and China. As a result, there is a spike in investors turning to global offshore lenders who provide flexible forms of either debt or equity on selected projects. Likewise, institutional investors are also expanding their footprint into real estate debt.
A recent report by JLL estimates institutional investments in real estate sector in India at $5.5 bn in 2018, which is the highest in the last decade. "There has been a surge in institutional investments into the sector since the beginning of 2014. The trend suggests that the market offers tremendous growth opportunities to foreign and domestic investors," said Nair.
5. Evolution of smart cities
With smart city initiatives pushing ahead in Singapore, Japan, South Korea, and Australia, Asia Pacific has seen an increasing need to build better digital infrastructures to maximize efficiency, sustainability and improve the living conditions for inhabitants.