Investors Eye High Liquidity Real Estate Markets Apac Blackrock
Investors are showing increased interest in real estate markets characterized by high levels of liquidity in the Asia Pacific region, according to Hamish MacDonald, head and chief investment officer of APAC Real Estate at BlackRock. Accommodation, logistics, and alternative assets are expected to benefit from economic tailwinds this year. MacDonald states that the countries and markets with abundant liquidity this year are Australia, Japan, Singapore, and Auckland in New Zealand, which is also the order of focus for BlackRock in 2021.
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Compared to 2022 and 2023, investor sentiment is expected to be more optimistic this year, with institutional investors initiating discussions about the deployment and recycling of capital in specific Asia Pacific real estate markets. BlackRock has been targeting serviced apartments in Singapore and life sciences in Australia, partnering with YTL Corp to acquire Citadines Raffles Place for $290 million in October last year and Citadines Mount Sophia for $148 million in February 2024 with Hong Kong-based accommodation operator Weave Living.
The 175-room Weave Suites – Hillside, operated by Weave Living, reopened this week. MacDonald states that the recent acquisitions in Singapore reflect the belief that there is a lack of new serviced apartment supply in the city-state, but demand for this type of accommodation is high. He also mentions that the focus is not on acquiring assets to build a portfolio, but on targeting specific deals. The preference is for existing properties, which can be refurbished and repositioned with a partner, and value-added through new amenities.
MacDonald notes that Singapore continues to attract significant capital inflows and high-skilled labour due to the country’s strong business growth. He remains optimistic about opportunities in Singapore. Japan is another target for real estate investors this year. BlackRock is bullish on the Japanese economy, and this is based on their analysis of domestic pricing power, wage growth, and corporate reforms, which support real estate growth collectively. In particular, the Japanese residential market has seen strong rental uplift in recent quarters due to factors such as wage increases and construction cost increases. Daigo Hirai, head of Japan real estate for BlackRock APAC, expects a 7-8% increase in residential rents in major Japanese cities such as Tokyo and Osaka this year.
BlackRock is interested in partnering with an experienced accommodation operator to manage a hybrid residential investment strategy that caters to both inbound tourist accommodation needs and domestic rental demand. This would allow the company to expand its investment presence in cities with a high volume of tourists, such as Kyoto and Fukuoka. Hirai states that assets close to train stations in residential-commercial neighborhoods, such as the Namba district in Osaka, and smaller developments with up to 50 units would fit this strategy. Acquisitions in the range of JPY1 billion ($8.93 million) to JPY3 billion would accommodate the firm’s exit strategy.
MacDonald emphasizes that the key to operating in Japan is to have specialized ground teams that can identify potential acquisition deals at a significant discount. The company’s focus in Japan is on residential assets. Long-term population growth estimates are expected to support positive long-term growth in most sectors of the Australian real estate market, according to Ben Hickey, Head of Australia Real Estate at BlackRock. Most property sectors in Australia have a chronic undersupply and low vacancy rates. Hickey states that any investment strategy in Australia should take into account whether rental growth can exceed inflation, the continued long-term supply-demand imbalance, and a favorable exit strategy. The focus is on niche asset classes in Australia, such as childcare properties, last-mile logistics assets, life science real estate, and self-storage properties. According to Hickey, these four asset types benefit from Australia’s long-term population growth and are “chronically undersupplied” compared to domestic supply and other markets in the region. This enables the firm to generate significant returns with limited risk, as it cannot rely on a favorable interest rate outlook to generate real estate returns.