Investors Eye High Liquidity Real Estate Markets Apac Blackrock

Investor interest in Asia Pacific real estate markets is being driven by high liquidity, according to Hamish MacDonald, head and chief investment officer of APAC Real Estate at BlackRock. Specifically, the accommodation, logistics, and alternative asset sectors are expected to benefit from economic tailwinds this year. The countries and property markets with the most abundant liquidity include Australia, Japan, Singapore, and Auckland in New Zealand, which are also the main areas of focus for BlackRock this year.

Compared to previous years, MacDonald expects investor sentiment to be more bullish in 2021, with institutional investors starting to discuss deploying and recycling capital in selective Asia Pacific real estate markets. In Singapore, BlackRock has recently focused its acquisitions on serviced apartment properties, partnering with YTL Corp to purchase Citadines Raffles Place for approximately $290 million in October 2020 and collaborating with Hong Kong-based accommodation operator Weave Living to acquire Citadines Mount Sophia for $148 million in February 2024. This week, the Weave Living-operated property will reopen as the 175-room Weave Suites – Hillside. MacDonald explains that these acquisitions reflect BlackRock’s view that there is a lack of new serviced apartment supply in Singapore, but demand for this type of accommodation is high. He also states that the focus will not be on acquiring assets to build an aggregated portfolio but on targeting the deals.

MacDonald adds that BlackRock remains very positive about opportunities in Singapore because the country continues to attract strong inflows of capital and high-skilled labour, which supports its strong business growth.

In addition to Singapore, Japan will remain a target for many real estate investors this year, according to MacDonald. BlackRock has bullish expectations for the Japanese economy based on its analysis of domestic pricing power, wage growth, and corporate reform, which collectively support growth in real estate. Daigo Hirai, head of Japan real estate at BlackRock APAC, explains that a combination of factors, including wage increases and an increase in construction costs, have led to relatively strong rental uplift in the Japanese residential market in recent quarters. In general, BlackRock expects a 7% to 8% increase in residential rents across major Japanese cities like Tokyo and Osaka this year. Hirai also notes that tenants have recently preferred larger-sized apartment units instead of compact units like studios.

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BlackRock intends to partner with an experienced accommodation operator to manage a hybrid residential investment strategy that captures both inbound tourist accommodation needs and domestic rental demand. This would allow BlackRock to deepen its investment presence in tourist-dominated cities such as Kyoto and Fukuoka. Hirai explains that the type of assets that fit this strategy are those located near train stations in residential-commercial neighbourhoods, such as Osaka’s Namba district, and smaller developments with up to 50 units. MacDonald adds that BlackRock’s focus in Japan is on residential assets, and their key to operating in Japan is specialist ground teams that can identify potential acquisition deals at a significant discount.

Meanwhile, long-term population growth estimates continue to support positive long-term growth across most sectors in the Australian real estate market, according to Ben Hickey, Head of Australia Real Estate at BlackRock. Hickey adds that most property sectors in Australia are characterized by under-supply and low vacancy rates. Therefore, any investment strategy in Australia should evaluate whether rental growth can surpass inflation, the ongoing long-term supply-demand imbalance, and a favourable exit strategy. Consequently, the company is concentrating on niche asset classes in Australia, including childcare properties, last-mile logistics assets, life science real estate, and self-storage properties. These four asset types benefit from Australia’s long-term population growth and are “chronically undersupplied” compared to the broader regional markets, which allows BlackRock to generate outsized returns with limited risk. Hickey concludes that they can no longer rely on a favourable interest rate outlook to generate their real estate returns.