Investors are showing more interest in deploying capital into Asia Pacific real estate markets characterized by high levels of liquidity, 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. “The countries and markets with abundant liquidity in the region this year include Australia, Japan, Singapore, and Auckland in New Zealand, which also represent the focus for BlackRock this year,” says MacDonald. He expects investor sentiment to be more bullish this year compared to 2023 and 2022, with institutional investors initiating more discussions about deploying and recycling capital in selected Asia Pacific real estate markets.
In Singapore, BlackRock has made acquisitions in the serviced apartment sector, partnering with YTL Corp to purchase Citadines Raffles Place for approximately $290 million in October last year. This was followed by a joint venture with Hong Kong-based accommodation operator Weave Living to acquire Citadines Mount Sophia for $148 million in February 2024. The Weave Living-operated property reopened this week as the 175-room Weave Suites – Hillside. “Our recent acquisitions in Singapore reflect our belief that there is a lack of new serviced apartment supply in the city-state, but demand for this type of accommodation is high,” says MacDonald.
According to MacDonald, the focus will not be on acquiring assets to build an aggregated portfolio, but on targeting deals strategically. “We prefer existing properties that we can work with partners to refurbish, reposition and add value by introducing new amenities,” he says. Singapore continues to attract strong inflows of capital and high-skilled labor, which accompany the country’s robust economic growth. BlackRock remains optimistic about opportunities in Singapore and will continue to invest in the market.
Japan will remain a target for many real estate investors this year, according to MacDonald. “We are bullish on the Japanese economy based on our analysis of domestic pricing power, wage growth, and corporate reform, which collectively support growth in real estate.” Factors such as wage increases and construction cost hikes have supported a relatively strong rental growth in the Japanese residential market in recent quarters, says Daigo Hirai, head of Japan real estate at BlackRock APAC. “In general, we expect a 7% to 8% increase in residential rents across major Japanese cities like Tokyo and Osaka this year. Tenants have also started to prefer larger apartment units over compact studios,” says Hirai.
BlackRock plans to partner with an experienced operator to manage a hybrid residential investment strategy that caters to both inbound tourist accommodation needs and domestic rental demand. This would enable BlackRock to expand its investment presence in tourist destinations such as Kyoto and Fukuoka. “The type of assets that fit this strategy are those situated close to train stations in residential-commercial neighborhoods such as Osaka’s Namba district, and smaller developments with up to 50 units,” says Hirai. He adds that the firm will consider acquisitions valued between JPY1 billion ($8.93 million) to JPY3 billion, to facilitate its exit strategy.
“Our key for operating in Japan is to deploy specialized ground teams that can identify potential acquisition deals at a significant discount,” says MacDonald. He adds that the firm’s focus in Japan will be on residential assets. Meanwhile, long-term population growth estimates are expected to support positive long-term growth across most sectors in the Australian real estate market, says Ben Hickey, Head of Australia Real Estate at BlackRock. “Most property sectors in Australia are characterized by undersupply and low vacancy rates.” An investment strategy in Australia should evaluate whether rental growth can outpace inflation, the ongoing supply-demand imbalance, and assess exit strategies, says Hickey. As a result, the firm is concentrating on niche asset classes – 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” when compared to the broader regional markets, adds Hickey. “This allows us to generate outsized returns with limited risks, as we are unable to rely on favorable interest rates to generate our real estate returns.”
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