Investors are increasingly turning to alternative real estate sectors to take advantage of their attractive yields and long-term growth prospects in Asia Pacific (APAC), according to property consultancy firm JLL. These non-traditional real estate assets in alternative sectors include aged care or nursing homes, student housing, education, data centres and laboratories.
Alternative sectors such as laboratiories are becoming more attractive to investors (Credit: Bloomberg)
APAC’s alternative real estate market may still be relatively immature compared to Europe and the U.S. But interest is growing as investors continue to seek out new sectors to diversify assets and enhance returns, says Rohit Hemnani, COO and head of alternatives, capital markets, JLL APAC. The way alternatives are structured presents a stable income stream, long-term operating lease, which in turn lowers market volatility, he adds.
JLL estimates yields of alternatives such as data centres ranging from 4% to 6% in Tokyo and Singapore; and around 6% to 7% in Sydney. By contrast, the yields for core assets such as office buildings are around 2.5% in Tokyo and 4.5% in Sydney, while shopping malls command 5% yield in Australia, and around 2.5% to 3% in Tokyo.
The top global buyers of alternatives are REITs, equity funds, investment managers, real estate operating companies and developers. In 2016 alone, these five groups of investors pumped over US$43 billion into the sector. There is a similar trend In Asia Pacific, where REITs are especially active in countries like Japan for aged care, says Hemnani.
Despite a number of barriers to entry like government regulation, significant opportunities do exist, and the outlook for alternatives in Asia Pacific is positive and will continue to gain momentum due to region’s broad demographic shifts, rising household wealth, and increasing use of technology.