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CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2017 revenues of $14.2 billion and more than 80,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #207 in 2018. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

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BLOGS

Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

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ASIA PACIFIC WATCH

Alternative real estate generally refers to those property types outside of the more typical office, retail, industrial, residential and hotel sectors and includes student housing and senior housing, data centres, healthcare real estate and parking facilities among others. While these are not new investment targets for many real estate investors in APAC, the shift towards these alternative sectors has been more pronounced in recent years. Although some previously may have avoided it due to the perception of higher risk or the need for specialist operational expertise, investors appear increasingly willing to invest in these assets. Investors are keen to diversify into markets perceived to be less competitive and which may offer broadly attractive yields, although some may find these expectations dashed. Furthermore, given that the demand drivers of these alternatives may be less prone to market volatility and more structurally driven than cyclically influenced, there is some evidence that they may offer better risk-adjusted returns relative to some of the typical property sectors. Most of the factors supporting these alternative sectors are broader, longer-term trends with much less volatility and less uncertainty surrounding the medium-to-longer term outlook. However, the specialized nature of alternatives means investors will need to spend more time understanding the operational specifics of the assets and the drivers underpinning demand in order to achieve scale and efficiency. Also, liquidity may be another risk factor, given the difficulty of judging the depth of future investment demand to form an exit strategy.

MACRO DRIVERS OF ALTERNATIVES IN APAC

Most of the demand drivers for the alternative sectors are no different from those globally although they certainly may be amplified in the APAC region. Take just two broad trends for example: ageing of the population (a key driver for senior housing and healthcare assets) and also technology adoption/internet usage (which drives the need for data centers among other assets). According to Oxford Economics, several major markets in APAC will see a big rise in the share of their populations aged over 65 in the coming decade. The number of internet users is also expected to rise rapidly across APAC, especially in China, which will see internet users per 100 people grow from 54.7 in 2017 to 68.9 in 2027.

DECEMBER 2018

22,351.06

2.0%

Nikkei 225

26,506.75

6.1%

Hang Seng

2,588.18

-0.6%

Shanghai Composite

113.53

0.6%

Yen/Dollar

Data points through end of November 2018. Change represents month-over-month change.

AGEING AND INTERNET USING POPULATION

Source: Oxford Economics. Growth in share of pop’n aged 65+ for the period 2017-2027

PRINCIPAL CONTRIBUTORS:
Shane Taylor
Pat Banyatpiyaphod
Juliet Cha
 
ALTERNATIVES DELIVER SOLID RISK-ADJUSTED RETURNS

After the Global Financial Crisis, the total returns for alternatives in Asia Pacific have performed quite strongly compared to other sectors. The 10-year average (2008-2017) unlevered total return for the alternatives sector was 7.8%, second only to the retail sector with a return for the same period of 8.7%. The alternatives sector also enjoyed the second lowest volatility of returns for that same period of time suggesting that an allocation to them may add stability to a portfolio. Its risk-adjusted returns are thus attractive at this aggregate regional level. For the most recent MSCI-IPD data available (year to December 2017) the alternatives sector was actually the only property sector to deliver double digit unlevered returns in the pan APAC index.

APAC TOTAL RETURN BY SECTOR
Note: Alternatives sector includes all property types excluding Office, Retail, Industrial, Hotel, and Residential.
Source: MSCI IPDs
INVESTOR INTEREST IN ALTERNATIVES

Investor demand for the alternatives sector has been growing in recent years as ample liquidity, lack of prime stock to target in the main sectors and also the many positive structural drivers all draw attention to these alternatives. According to CBRE’s Asia Pacific Investor Intentions Survey 2018, retirement housing and real estate debt are generating stronger preferences among investors nominated by 24% and 22% of respondents, respectively. Investors’ appetite in data centres has gained strong interest over the past three years with 21% noting it as a preference in 2018 compared to only 12% in 2016 and no doubt due to the realization that rapid growth in data usage and strategic uses of big data is a fundamental basis for the modern economy/society.

INVESTORS’ PREFERRED ALTERNATIVE REAL ESTATE INVESTMENT SECTORS
Source: CBRE Asia Pacific Investor Intentions Survey 2018
BIG DATA GENERATION LEADS TO DATA CENTRE APPEAL

Data centre market growth over the last few years has been considerable and this is expected to continue given the growing adoption of cloud computing, big data and internet usage by more citizens, governments and businesses across APAC. Opportunities to acquire data centres exist in all APAC markets but especially in markets with large populations such as China, India and Japan, while Singapore holds considerable appeal as a regional focal point for Southeast Asia. As one of the largest markets for data center infrastructure, Singapore has a long-term policy to reposition and reinvest in itself as a tech-oriented hub. As it gradually loses its manufacturing industries to other Asian markets, Singapore accounts for a disproportionate share of total APAC data centre supply.

DATA CONSUMPTION IN SELECTED APAC COUNTRIES
Source: PwC’s Global Entertainmnet & Media Outlook 2016-2020
AUSTRALIAN HEALTHCARE PROPERTY OUTPERFORMS

A noteworthy sector of focus within APAC alternatives is Australian healthcare property, which has consistently outperformed the Australian All Property Index since June 2008. The sector’s reputation of being more cycle resistant was further cemented when its total returns remained positive even during the GFC, with a still-decent total return of 7.1% in the year to December 2009. In the year to end 2017, the healthcare property sector in Australia delivered a strong 22.1% total return, with 7.6% from the income return. This outperformed the main Australian sectors of office, retail and industrial, which returned 13.4%, 10%, and 10.9% respectively. Although the return has recently dropped, the Australia healthcare property sector still had strong returns of 11.9% in the year to June 2018 and a 10-year average return of 13.7%.

ANNUALIZED TOTAL RETURN OF AUSTRALIAN HEALTHCARE PROPERTY
Source: MSCI IPD
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This information is for our clients and investors only. Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy and Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

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