If 2020 was the year that changed everything, 2021 may be the year where change becomes the new standard. The arrival of 2021 may not shake off all the challenges of a pandemic-riddled economy, but it could quickly establish itself as a year where Asia Pacific enters a new cycle of real estate growth, innovation and investment.
Economic recovery is likely in many markets. New dynamics influencing how people work, live and play will become more obvious. Pre-COVID real estate trends will continue to accelerate. When aligned, all these factors will shift how investors view assets and how occupiers and consumers use real estate across Asia Pacific.
From 2021, the impact of COVID will loom large but will not define Asia Pacific’s new real estate cycle. JLL expects four themes to define Asia Pacific real estate in 2021.
1 – Opportunity in enhancements and value-add
A reimagining of outmoded assets and outdated spaces across all sectors may become a defining theme from 2021 onwards. We estimate that upwards of 40% of today’s office assets need some form of enhancement to stay relevant. As a result, investors’ appetite for value-add investments may increase in tandem with opportunities to reconfigure real estate to meet changing needs arising from e-commerce, health and safety and remote working.
2 – Demand for experiences matures
COVID-19 has served as the ultimate accelerant to corporate transformation, speeding up many trends evident before the pandemic and pushing organisations toward change. Business leaders are starting to realize that their businesses may never operate in the exact same way they did before COVID-19. CRE leaders need to address the evolution and 2021 could be a year for responsible investments and radical transformation to create a better world of work through real estate. In retail, we will see a continued acceleration of change with experience at the fore.
3 – Investment volumes to rise 15-20%
We expect stronger appetite for assets with income stability as well as a pick-up in hotel, retail and office investments to occur in tandem with economic recovery and potentially more clarity on the relevance of the office. We continue to expect more allocation to private equity real estate as returns of bonds and equities remain uncompelling amid low interest rates. In 2010, investment volumes rose by 47% year on year as the region recovered from the global financial crisis.
4 – Investors to reallocate their portfolios to increase diversification, move up the risk curve
The last few years have been defined by stronger inflows into core office investments but we think this may change in 2021. Investors are likely to deploy more capital into opportunistic and value-add projects. We also expect investors to raise the diversification within their portfolios by allocating more capital to lower growth, higher yielding assets in this low returns, low interest rate environment, adding more logistics, multifamily, data centers and life science assets.
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