Aviva bullish on Asia-Pacific real estate
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Asset-management firm Aviva Investors takes a positive view of the Asia-Pacific region, but advises caution as external shocks from the United States and Europe could still pose downside risks.
Investors can expect an improvement in real-estate returns in the region this year, driven by improving occupier demand and strong interest from domestic and regional investors. However, the company prefers leasing risk to pricing risk in selected markets at this point of the cycle, said Elysia Tse, senior vice president of strategy and research for Asia-Pacific real estate at Aviva Investors.
“We continue to favour suburban retail in Singapore, which maintained 99-per-cent occupancy rates through 2012, outperforming other commercial-real-estate sectors. With increasing online retailing in Australia, Japan and China, there are attractive opportunities in the logistics sector across the region,” she said.
Aviva Investors believes the office sector will provide the strongest returns in the region over the next three years, while a five-year trend suggests that the industrial sector will deliver the strongest performance. Other favoured markets include “necessity retail” in Australia, Singapore and Japan, with these holdings offering a degree of downside protection by tapping into markets where consumers are likely to continue to buy necessity goods even if the economic outlook takes a turn for the worse.
While real-estate capital values in Japan have increased substantially over the past six months, the country has also shown signs of recovery in occupier market fundamentals after the government’s aggressive quantitative-easing programme. A number of Tokyo office market segments have already experienced rent increases and higher occupancy rates, with prime and medium-to-large offices commanding rent increases.
On the other side of the globe, US core prime assets stand out among the mature economies with demand from first- and second-tier cities. Aviva Investors sees this as likely to spread to better-quality secondary assets and could be a turning point for real estate with good-quality secondary assets attracting investor interest. These are typically well-located assets that can be improved by initiatives such as changes to tenancy agreements and are likely to benefit from growing investor demand for relatively secure sources of yields.
