Institutional investors in the Asia-Pacific region are turning their attention to the real estate markets of Japan and Australia, according to a recent report titled "State of Play: Current Trends in APAC Private Real Estate Funds."
The report, jointly launched by global law firm Goodwin, professional services firm KPMG, and investor services group IQ-EQ, highlights the perceived attractiveness of Japan and Australia to institutional investors.
“Japan and Australia benefit from having the longest track record in Asia of attracting foreign inbound investment into real estate, but other than that they are very different markets,” Matthew Nortcliff, a partner at global law firm Goodwin told AsianInvestor.
For Australia, the report findings indicated that the living, or residential, sector offered the most compelling opportunities.
“This included opportunities in the build-to-rent sector, driven by a general under-supply of housing stock in Australia—as is the case for many developed markets,” said Nortcliff.
“Culturally, Australia was seen to be the market most suited to living sub-sectors such as elderly care, assisted living and student accommodation.”
Japan, in particular, emerged as a preferred jurisdiction for both general partners (GPs) and limited partners (LPs).
“For many, Japan may owe its popularity purely to its low interest rates, combined with the current weakness of the yen. That said, a number of our interviewees also pointed to a rebound in tourism, especially from China, that would support investment in the hospitality sector,” said Nortcliff.
Japan multi-family residential has been the key strategy for Japan in recent years and may continue to be so, he said.
“Particularly as Japanese corporates have been selling off non-core real estate due to shareholder and regulatory pressure.”
While Japan and Australia take the spotlight, other APAC markets also exhibit pockets of investor interest. South Korea continues to garner positive sentiment, with a focus on industrial sectors and attractive opportunities in healthcare and offices.
Singapore also remains a jurisdiction of interest, although pricing challenges persist, according to Nortcliff.
Meanwhile India is being described as the greatest beneficiary of disruption in other growth markets in the current economic climate.
“India has a very compelling growth story in its own right and most groups that are active in India would argue that that is what is driving interest in the market, irrespective of any disruption elsewhere,” said Nortcliff.
India, according to many of the respondents, can provide scalable emerging market exposure. Its industrial sector, in particular, has seen a clear uptick in appetite.
“In the current environment, any market that can offer scalable emerging market exposure, accessible through reputable global partners, has to be of interest to real estate investors with the requisite risk appetite,” he said.
The report also highlights the increasing popularity of private credit among investors in the APAC region. In the current high-interest rate environment, both GPs and LPs prefer to be lenders rather than borrowers, according to Nortcliff.
“Given the macro factors at play globally, the risk-adjusted returns for debt investments are, for many, more attractive than for equity investments,” he said.
Private credit, particularly in the mature Australian market, has seen a significant rise in interest. This trend aligns with investors' desire for greater control and transparency, prompting GPs to explore launching more bespoke products to meet investor demand.
“Australia has a well-developed private credit market with both domestic and international players finding compelling opportunities. Outside of Australia the opportunities are harder to find, but many of our contributors observed that conventional lenders were becoming more conservative and so in the markets where that is the case— such as Korea—private credit funds are ready to fill any funding gaps that emerge,” he said.
The post-Covid era has seen an unprecedented accumulation of capital across private strategies that have surpassed $13 trillion in assets under management, according to Wei Li, multi-asset quant solutions portfolio manager at BNP Paribas Asset Management.
“We think private credit can navigate a 'higher for longer' rates environment well. The direct lender-borrower relationship provides flexibility, while predominantly floating rate structures reduce duration risk in portfolios,” Li told AsianInvestor.
Li expects allocations to private credit and assets broadly to continue increasing, thanks to return enhancement, risk reduction, and sustainable investing potential.
“We believe it is possible for asset managers to construct portfolios for open-ended funds that include allocations to private assets, allowing smaller investors to gain exposure to this attractive asset class. With its illiquidity premium over bonds, private credit merits consideration as investors seek to optimise portfolio construction,” he said.