Demographics re-shaping Asia's real estate landscape
Asia's real estate market is undergoing significant transformation, driven by unique demographic trends, according to Louise Kavanagh, Chief Investment Officer and Head of Asia Pacific Real Estate at global investment manager Nuveen.
Nuveen
"By 2030, Asia Pacific will be home to 50% of the world's Generation Z population – which should be around 979 million people," Kavanagh told AsianInvestor.
This young demographic will be a significant part of the workforce and of future spending demand, according to Kavanagh.
"Asia Pacific will have the world's fastest urbanisation rate, with around 332 million people migrating to cities by 2030. This will result in 30 megacities with populations exceeding 10 million," she added.
These demographic shifts are not only influencing demand but also shaping investment opportunities across various sectors.
"The most attractive markets underpinning the strong risk-adjusted returns across cycles are the ones that are backed by robust and resilient structural tailwinds. Many of these tailwinds are demographic in nature," said Kavanagh.
PROMISING SECTORS
The changing population dynamics in Asia are creating unique opportunities in the living and alternative sectors.
Japan multifamily, Japan senior living, and Australia purpose-built student accommodation (PBSA) are all promising areas, according to Kavanagh.
"With a low provision rate and shortage of beds in key economic centres such as Tokyo and Osaka, and very supportive insurance pensions covering 90% of costs, the senior housing sector is well placed to ride this demographic trend," she said.
Peter Hayes, global head of investment research at PGIM Real Estate, echoed this sentiment.
PGIM
"The living sector continues to look attractive if only due to the resilience it offers. The multifamily market has always been a greater diversifier of portfolio risks for that reason, but rental growth has surprised to the upside, owing to affordability pressures and the shortage of housing not expected to go away over the next few years," Hayes told AsianInvestor.
Asia's demographic dividend is also driving demand in technology-related areas, according to Hayes, who pointed to widespread digitalisation and adoption of cloud computing as a factor underpinning the demand outlook for data centres.
"This leads to a stronger rental growth outlook and opportunities for development," he noted.
DIVERSE GROWTH
Compelling growth prospects and demographic tailwinds in emerging Asian markets could drive outperformance in the real estate sector over the next 5-10 years, according to Tim Jowett, head of Asia research at Hines.
"We are positive on structural growth opportunities both in India and in Vietnam,” Jowett told AsianInvestor. “In Vietnam, we are currently more focused on opportunities in the warehouse/logistics space, taking advantage of realignment in regional supply chains."
Hines
In India, the opportunity is more broad-based, encompassing residential, office and warehouse/logistics developments to meet growing demographically linked demand from a larger and wealthier middle class, he said.
Jowett also identified attractive risk-adjusted return opportunities across various regions and sectors in Asia.
"We see the Japan market embarking on a generational shift in its macro and market economies as the economy moves from deflation to inflation. With a stronger economy, propelled by a healthier corporate sector, this bodes well for the future trajectory of the real estate market,” said Jowett.
A case in point, as identified in Hines’ latest research, is the Tokyo office leasing market, which appears to have bottomed and is positioned for rental growth.
“Due to the increased importance of sustainability to office occupiers, the opportunity to retrofit Tokyo's aged office buildings, with an average age of ~35 years, provides real estate players who have active local asset management teams multiple avenues to extract alpha," said Jowett.
NUANCED APPROACH
While Asia's demographic trends present compelling opportunities, investors are often encouraged to navigate the region's diverse and complex real estate landscape with care.
Nuveen’s Kavanagh advises focusing on cities and economies backed by strong structural megatrends that will help to underpin income and values over the long term as demand grows.
"Choosing a balanced and diverse portfolio, backed by economic growth cycles across Asia Pacific is therefore highly vital to global investors, as strong and resilient growth pulls income and capital value higher over the long term," said Kavanagh.
PGIM’s Hayes also highlighted the need for a nuanced approach, pointing to the growing importance of supply chain resilience and optimisation in the logistics and light industrial sectors.
"Today supply chain resilience and optimisation are big themes, dictating opportunities for logistics and even light industrial investment such as in national distribution markets, on border frontiers and in trade-driven markets around ports and airports," said Hayes.