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CBRE Research
Asia Pacific Investor Intentions Survey 2018
© 2018 CBRE, INC. CBRE RESEARCH | 2
Executive Summary04
Real estate remains an attractive asset
class
Key trends to watch
12
Respondent’s profile and
survey methodology
05
22
Asia Pacific Investor Intentions Survey 2018
© 2018 CBRE, INC. CBRE RESEARCH | 3
Asia Pacific Investor Intentions Survey 2018
© 2018 CBRE, INC. CBRE RESEARCH | 4
EXECUTIVE SUMMARY
• Investor appetite for Asia Pacific real estate remains robust in 2018, driven by the twin objectives of securing stable income streams and asset class
diversification.
• While concerns about potential global and local economic shocks weakened for the second consecutive year, investors are more concerned
about higher property prices.
• The high price of core assets and search for higher returns continues to drive investors towards core-plus/good secondary and value-added assets.
This year marked the first time that value-added has overtaken prime core as the most preferred asset.
• Investor focus is broadening away from the traditional preferred markets of Shanghai, Sydney and Tokyo. Several cities are attracting attention, led
by Singapore, Melbourne, Brisbane and regional cities in China and Japan.
• The survey found narrower return expectations among different strategies, pointing to more competition for assets offering high single digit
unlevered returns.
• The industrial and logistics sector is seeing a substantial increase in investor interest, driven by structural changes including e-commerce growth and
the development of modern logistics facilities into an institutional investment product. Investor demand for multi-family owing to high housing prices
and declining home ownership affordability across the region.
• With occupiers increasingly demanding flexible leasing terms and space usage, many investors hold the view that co-working is the future of office
work environment and an amenity for tenants. Most investors believe that up to 20% is the ideal proportion of co-working space in a single office
building to enhance its value.
• Although Asian outbound investment continues to eclipse previous records and Chinese investors still comprise the largest source of capital,
Chinese outbound investment is expected to slow this year.
REAL ESTATE REMAINS AN ATTRACTIVE ASSET CLASS
Asia Pacific Investor Intentions Survey 2018
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0%
20%
40%
60%
80%
100%
2016 2017 2018
% o
f re
sp
on
de
nts
Buy more About the same Buy less
STRONG INVESTOR APPETITE FOR REAL ESTATE
Investor appetite for Asia Pacific real estate
remains robust. An overwhelming 92% of
respondents indicate that their investment
activity in 2018 will be the same or greater
compared to 2017.
Real estate fund managers display stronger
intentions to purchase more this year, a finding
supported by CBRE Research’s The Next Wave
of Capital Deployment report published in
January 2018, which estimated that
approximately US$53 billion of real estate private
equity capital will be deployed into Asia Pacific
real estate by 2020.
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2016, 2017 & 2018
Figure 1: Purchasing activity intentions over the past three years
80%84%
92%
Asia Pacific Investor Intentions Survey 2018
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DRIVEN BY STABLE INCOME STREAMS AND RISK DIVERSIFICATION
Investor demand for real estate is being motivated
by the objective of securing stable income streams
and asset class diversification.
In comparison with other asset classes including
equities, bonds, direct real estate and real estate
securities, direct real estate has provided more
stable returns over the past decade while also
being less volatile. This, together with the higher
volatility in equities and bonds witnessed since the
beginning of this year, is strengthening investor
appetite for direct real estate investment.
As interest rates gradually move into the upward
cycle, there will be limited room for further yield
compression to drive value growth. For the second
consecutive year, less investors selected capital
value growth as the major motivation to invest in
real estate.
Figure 2: Main motivation for investing in real estate compared to last year
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2017 & 2018
Stability of income stream
26%
19%
Asset class diversification
27%
3%
Capital value growth
18%
26%
20182017
Asia Pacific Investor Intentions Survey 2018
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INVESTORS’ CONCERNS SHIFT TOWARDS PROPERTY PRICING
The improved global and regional economic
outlook is fostering a more optimistic attitude
among investors. Several export-orientated
economies in the region including China, Japan,
Hong Kong, South Korea and Singapore recorded
better-than-expected economic growth last year
thanks to the recovery of global trade.
Concern about potential global and local
economic shocks weakened for the second
consecutive year. In contrast, investors are more
concerned about property prices. Rising interest
rates are expected to place pressure on asset
prices, especially now that property yields have
already moved below pre-crisis levels and the gap
between property yields and long-term
government bond yields has narrowed further.
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2017 & 2018
Figure 3: Greatest threat to property markets 2017 - 2018
0% 10% 20% 30% 40% 50% 60%
Overbuilding leading to excess supply
Global political instability
Faster than expected rises in interest rates
Property is overpriced
Global and local economic shock
% of respondents
2018
2017
Asia Pacific Investor Intentions Survey 2018
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STOCK IS AVAILABLE BUT PRICING IS HARD TO JUSTIFY
The limited availability of product and asset pricing
have traditionally been the major obstacles facing
real estate investors. This year, investors displayed
greater concern about high asset prices amid what
is still an intensely competitive market for prime
commercial real estate in Asia Pacific.
The investor pool continues to broaden, and now
consists of traditional players such as property
companies, REITs and real estate funds, along with
institutional capital and high net worth investors
looking for asset diversification.
Concern about the availability of stock weakened
this year, with more investors indicating that they
are willing to sell. However, investors still find it hard
to justify current pricing.
CBRE Research foresees that slower rental growth
expected in 2018, together with the expectation of
higher interest rates, could prompt investors to
adopt a less aggressive stance towards
underwriting.
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2016, 2017 & 2018
Figure 4: Biggest obstacle to acquiring assets over the past three years
2016
38%35%
44%
16%
24%18%
2017 2018
Asset Pricing Asset Availability
1 Institutional capital includes insurance companies, pension funds and sovereign wealth funds
Asia Pacific Investor Intentions Survey 2018
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INVESTORS FOCUS ON CORE-PLUS AND VALUE-ADDED
The high price of core assets and search for higher returns continues to drive investors towards core-plus/good secondary, which entails investing in prime assets in
non-core areas or non-prime assets in core areas, and value-added assets.
This year’s survey marked the first time that value-added has overtaken core as the most preferred asset. Investors are exploring different ways to create value
through asset enhancement, such as incorporating retail elements or rent-paying amenities into office buildings. Other strategies include upgrading through interior
and exterior renovation and conversion to alternative use.
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2016, 2017 & 2018
Figure 5: Preferred investment strategy 2016 - 2018
Asia Pacific Investor Intentions Survey 2018
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STRONGER INTEREST IN SINGAPORE, MELBOURNE AND REGIONAL
CITIES IN JAPAN AND CHINA
Japan remains the top destination for investment, with Tokyo
ranking as the most preferred city. Investors are also displaying
strong interest in regional cities such as Osaka and Fukuoka.
Both cities offer solid fundamentals as well as higher entry
yields.
Melbourne eclipsed Sydney as the most attractive city in
Australia, a result due to its stronger rental growth supported
by tight vacancy. Brisbane received stronger interest from
cross-border investors considering counter cyclical plays, with
office rents recently bottoming-out after a five-year correction
and expected to recover over the next two years.
The office market recovery helped propel Singapore to
among the top three destinations for cross-border investors for
the first time since the survey began in 2014. As Grade A assets
are scarce and aggressively priced, investors are focusing on
office properties with upgrading potential as Grade A rents will
continue to grow.
Shanghai continues to be the most desired market in China,
with transaction volume rising to an historical high in 2017. Tier II
cities with strong fundamentals such as Hangzhou, Nanjing
and Chengdu are also gaining more traction from investors.
Figure 6: Top ten preferred cities for
investment (cross-border* only)
Note: *Cross border refers to respondents domiciled in the different country as the most attractive destination selected Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2018
KEY TRENDS TO WATCH
Asia Pacific Investor Intentions Survey 2018
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#1: NARROWER RETURN EXPECTATIONS AMONG DIFFERENT
STRATEGIESThis year’s survey asked investors to estimate total
unlevered returns available in the Asia Pacific real
estate market. The results indicated narrower
return expectations among different strategies.
Core / core-plus investors estimate most available
returns at 3-6%, while value-added investors
expect 6-9%. Opportunistic investors anticipate 6-
12%. The low yield environment and overlapping
investment strategies mean that these
expectations are below those that were held
previously.
CBRE Research advises investors to consider that
there will be more competition for assets offering
a return profile of around 6-9%. High-risk profile
investors are seeking value-added assets as a low
risk opportunistic strategy to achieve target
returns.
Note: ^Unlevered total returns (average annual over 3 years)Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2018
Figure 10: Investors’ views of total unlevered total returns available in Asia Pacific
1-3% 3-6% 6-9% 12%+9-12%
Core/Core-plus
Value-added
Opportunistic
Legend
Most availableLess available
Asia Pacific Investor Intentions Survey 2018
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0%
10%
20%
30%
40%
Office Industrial & Logistics Retail Multifamily Hotels
% o
f re
sp
on
de
nts
2016 2017 2018
#2: A THEMATIC SECTOR FOCUS
The industrial and logistics sector is seeing an
increase in investor interest, largely at the
expense of retail. This is being driven by structural
changes including e-commerce growth and the
development of modern logistics facilities into an
institutional investment product.
Investor appetite for multi-family is rising as high
housing prices create strong and stable demand
for rental accommodation. Japan has long
been the sole destination for multi-family
investment in Asia Pacific, but China is beginning
to offer considerable opportunities, supported by
government initiatives to develop the rental
housing market. Australia is also a potential
destination for the multi-family sector, with
fundamentals appearing attractive for both
domestic and international investors.
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2016, 2017 & 2018
Figure 11: Preferred sectors for investment 2016 - 2018
E-commerce growth driving
interest in logistics assets
High housing prices creating demand
for rental apartments
Asia Pacific Investor Intentions Survey 2018
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HIGH HOUSING PRICES DRIVE DEMAND FOR MULTI-FAMILY
The jump in popularity of multi-family is
being driven by declining homeownership
affordability. Surging property prices are
outstripping wage growth and making it
difficult for Asia Pacific millennials to
accumulate the necessary capital to buy
their own home. 63% of respondents to
CBRE Research’s Asia Pacific Millennials
Survey published in 2016 said that they were
forced to rent homes due to being unable
to buy them.
Median housing prices in tier I cities in Asia
Pacific are more than 10 times greater than
average household incomes. The higher the
price multiple to income, the more likely it is
for millennials to either live at home with
their parents or rent accommodation.
Some investors are already exploring rental
apartment opportunities in Beijing, Shanghai
and Hong Kong, as these markets have a
high housing price to income ratio
compared to other tier-1 cities in the region.
Target end-users are typically young
professionals who have been working for
two to three years.
Figure 12: Millennials’ attitudes toward renting property
Source: Demographia, Q3 2015, MSCI, December 2015, Asia Pacific Millennials Survey, CBRE Research, October 2016
63%agreed that this
generation is forced to
rent as buying a
property is out of reach
for most
Figure 13: Median housing price to annual household income ratio
Asia Pacific Investor Intentions Survey 2018
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INTEREST IN NICHE SECTORS IS RISING
Investor demand for niche sectors is growing
further due to rapid structural changes,
relatively higher initial yields and comparative
immunity to real estate cycles.
Demographic changes are piquing investors’
interest in retirement living, healthcare and
student accommodation. Ageing populations
in Japan and China will create more demand
for retirement living and trigger demand for
healthcare. Singapore is another potential
market for healthcare due to its status as a
medical tourism hub in Southeast Asia.
Opportunities to invest in student
accommodation lie mainly in Australia.
Interest in data centres increased significantly
in this year’s survey, amid rapid growth in data
usage. Opportunities to acquire data centres
mainly exist in markets with large populations
such as China, India and Japan, while
Singapore holds considerable appeal as a
regional focal point for Southeast Asia.
Real estate debt is generating stronger interest
among investors after weakening in last year’s
survey. The coming years will see significant
debt refinancing pressure, particularly in
China, where US$75 billion of corporate bonds
will need to be refinanced by listed Chinese
real estate companies between 2018-2020. Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2016, 2017 & 2018
Figure 14: Top five alternative sectors among investors
0% 5% 10% 15% 20% 25%
Student Living
Real EstateDebt
Data Centre
Healthcare
RetirementLiving
2018 2017 2016
Major country focus
Asia Pacific Investor Intentions Survey 2018
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#3: CO-WORKING EMERGES AS IMPORTANT NEW TREND
With capital value growth increasingly being driven by income growth, it is essential that investors gain a thorough understanding of occupier
requirements. When asked to identify the occupier trends exerting the greatest impact on real estate value, investors selected space that can be
procured quickly, with little capital investment and at very flexible terms.
This finding aligns with occupiers’ naming co-working centres as their third most preferred location for expansion over the next two years. Occupiers
are no longer bound to CBD offices when considering new space, with their growing preference for flexible space increasingly being reflected by
actual office take up in major Asia Pacific office markets.
Source: Asia Pacific Occupier Survey, CBRE Research, March 2018, Asia Pacific Investor Intentions Survey 2018, CBRE Research, March 2018
42%
0% 10% 20% 30% 40% 50%
Automation
Last-mile logistic
Experiential retail
Co-living
Smart buildings
Diversification from traditionaloffice/retail properties
Flexible space
33%
0% 10% 20% 30% 40% 50%
Business park
Serviced office
Campus
CBD office
Co-working centre
Office in decentralisedlocations
Office in major businessdistricts
Figure 16: Occupier trends that investors believe have the most
impact on real estate valueFigure 17: Locations where occupiers intend to increase their
space over the next two years
Asia Pacific Investor Intentions Survey 2018
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INVESTORS BELIEVE FLEXIBLE SPACE IS THE FUTURE
With occupiers increasingly demanding
flexible leasing terms and space usage,
many investors hold the view that flexible
space is the future of office work
environment.
Some owners are offering co-working as an
amenity for existing tenants in the same
building, providing occupiers with the
flexibility to take space both on a traditional
lease and also on a co-working basis.
In general, investors looking to gain their
exposure to the co-working trend intend to
partner with third-party co-working operators
as they are still evaluating and testing the
sustainability of the flexible space concept.
Property companies are opting to develop
and operate their own co-working brands as
an amenity and component of their overall
tenant mix. Examples include Swire
Properties’ Blueprint in Taikoo Place in Hong
Kong and SOHO China’s SOHO 3Q in its
office portfolio in Beijing and Shanghai.
Figure 18: Why does co-working appeal to investors?
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2018
Future of office work 32%
An amenity for tenants 28%
Enhance long term building income 20%
Asia Pacific Investor Intentions Survey 2018
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UP TO 20% IS THE OPTIMAL PERCENTAGE OF CO-WORKING SPACE IN
AN OFFICE BUILDING TO ENHANCE ITS VALUE
Most investors believe that up to 20% is the
ideal proportion of co-working space in a
single office building to enhance its value. If
more than 40% of space in a single building is
allocated to co-working, investors believe its
value will be negatively affected.
Although some lower grade office buildings
have recorded value appreciation after
being repositioned to co-working, overall
investors are unwilling to allocate too much
space to this amenity. Only 39% of co-working
operators are profitable globally.
Figure 19: What proportion of co-working space impacts building value?
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2018
Asia Pacific Investor Intentions Survey 2018
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#4: POTENTIAL SLOWDOWN OF CHINESE OUTBOUND INVESTMENT
Although Asian outbound investment continues
to eclipse previous records and Chinese
investors still comprise the largest source of
capital, CBRE Research expects to see a
continuation of the slowdown in Chinese
outbound investment first witnessed in H2 2017
following the introduction of new capital
controls.
This year’s survey indicates that Chinese
investors are less keen to invest overseas in 2018.
While overall interest remains reasonably firm,
fewer investors intend to invest more than they
did in 2017. Government scrutiny of overseas
real estate acquisitions will continue this year,
with another set of capital controls coming into
effect in March 2018. Real estate investment will
subject to an additional layer of examination.
CBRE Research expects to see a stronger focus
on Belt & Road countries and industry-related
asset classes such as warehouses, industrial
parks and ports, supported by more flexible
regulatory treatment. Redeploying offshore
capital is expected to drive some investment
transactions, but any purchases will be
considered carefully as they will also be subject
to closer regulatory scrutiny.
Figure 20: Chinese outbound investment intentions 2017 vs 2018
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2018
0% 10% 20% 30% 40% 50% 60% 70%
No intentions to invest oversesas
Less than the amount in 2017
The same amount as in 2017
More than the amount in 2017
2018 2017
Asia Pacific Investor Intentions Survey 2018
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CONCLUSION
“Despite high valuations, property remains an attractive asset class given its stability and risk diversification. Investors in the Asia Pacific real estate market will display strong demand in 2018”
Although asset pricing poses a major obstacle,
investors remain keen to purchase real estate
for risk diversification. Investors’ focus is on
income growth as capital value appreciation
will increasingly be driven by income growth.
The high price of core assets and search for
higher returns will continue to drive investors
towards core-plus/good secondary and value-
added assets. Investors are set to shift their
focus away from the traditionally preferred
markets of Shanghai, Sydney and Tokyo to other
locations including Singapore, Melbourne,
Brisbane and regional cities in China and
Japan.
Other key trends this year will include investors
reducing their return expectations; a more
thematic sector focus; stronger interest in co-
working; and the continued slowdown in
Chinese outbound investment.
SURVEY PROFILE
Asia Pacific Investor Intentions Survey 2018
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RESPONDENT’S PROFILE & SURVEY METHODOLOGY
The fifth annual CBRE Investor Intentions Survey
focuses on the forward looking views of real
estate investors in Asia Pacific and was carried
out online between 15 November 2017 and 31
January 2018.
A total of 366 responses were received. 82% of
respondents were companies domiciled in Asia
Pacific and the other 18% were domiciled
primarily in Western Europe, the Middle East and
North America.
For the purpose of analysis, CBRE Research
categorised some investors into groups. These
included:
Funds or asset managers (35% of respondents)
and private equity firms (4%) which collectively
accounted for 39% of respondents.
Listed property companies & listed REITs (15%),
Developers (13%), and private property
companies & unlisted REITs (11%), which
collectively accounted for 39% of respondents.
Sovereign wealth funds, insurance companies,
pension funds and family offices, which
collectively accounted for 13% of respondents.
CBRE Research used the broad categorisation
“investor” to denote this group.
Figure 21: Profile of respondents
Note: Real estate funds include funds or asset managers and private equity firmsInvestor includes insurance company, pension fund, sovereign wealth fund and private individual investors / family office.Other include property consulting firms, legal firms, aged care, civil Construction, hotel operators, logistics and retailer.
Source: Asia Pacific Investor Intentions Survey, CBRE Research, March 2018.
Asia Pacific Investor Intentions Survey 2018
© 2018 CBRE, INC. CBRE RESEARCH | 24
CAPITAL MARKETS CONTACTSCAPITAL MARKETS CONTACTS
Tom Moffat
Executive Director
ASIA PACIFIC
AUSTRALIA
Bruce Baker
Senior Managing Director
Rob Blain
Executive Chairman
ASIA
SINGAPORE
Jeremy Lake
Executive Director
NEW ZEALAND
Andrew Stringer
National Director
GREATER CHINA
Alan Li
Managing Director
INDIA
Gaurav Kumar
Managing Director
HONG KONG
Stanley Wong
Executive Director
VIETNAM
Phuong Hang Dang
Managing Director
TAIWAN
Andrew Lin
Senior Director
KOREA
Don Lim
Senior Director
JAPAN
Roderick Gerstman
Associate Director
JAPAN
Junichiro Muto
Senior Director
Yvonne Siew
Executive Director
Dennis Yeo
Managing Director
Nikhil Bhatia
Managing Director
Steven Lim
Senior Director
NORTH ASIA
SOUTH ASIA
THAILAND
Kulwadee Sawangsri
Executive Director
Xuan Quynh Nguyen
Investment Manager
PACIFIC
Mark Coster
Senior Managing Director
SOUTHEAST ASIA CAPITAL ADVISORS
GLOBAL CAPITAL MARKETS
INDUSTRIAL & LOGISTICS
DEBT & STRUCTURED FINANCE
Asia Pacific Investor Intentions Survey 2018
© 2018 CBRE, INC. CBRE RESEARCH | 25
RESEARCH
Henry Chin, Ph.D.
Head of Research, Asia Pacific
For more information about this report, please contact:
For more information regarding global research, please contact:
Nick Axford, Ph.D.
Global Head of Research
Henry Chin, Ph.D.
Head of Research, Asia Pacific
Richard Barkham, Ph.D., MRICS
Global Chief Economist
Jos Tromp
Head of Research, EMEA
Spencer Levy
Head of Research, Americas
© 2018 CBRE, Inc.
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This report was prepared by the CBRE Asia Pacific Research Team, which forms part of CBRE Research—a network of preeminent researchers who collaborate to provide real estate market research and econometric forecasting to real estate.
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Karie Kwan
Associate Director, Asia Pacific
Leo Chung, CFA
Capital Markets Specialist, Asia Pacific
Asia Pacific Investor Intentions Survey 2018
© 2018 CBRE, INC. CBRE RESEARCH | 26