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The interest in self-storage, data centers, student accommodation, education and old age management is increasing as investors chase returns.
According to global real estate consultancy JLL, commercial real estate investors in the Asia-Pacific region are increasingly turning to other property sectors to enjoy their attractive returns and long-term prospects for growth.
"Overall, the Asia-Pacific alternative real estate market is still relatively unsuitable for Europe and the US. But as investors continue to seek new industries to diversify assets and raise returns, interest is growing "Rohit Hemnani, Capital Markets Chief Executive Officer, JLL Asia Pacific said. "The structuring of alternatives provides a long-term lease to ensure a stable stream of income and to minimize market volatility."
According to JLL, the figures for alternatives such as Tokyo and Singapore data centers range between 6 and 7 percent and 4 to 6 percent for Sydney. In comparison, key assets including office buildings in Tokyo can be manufactured between 4.5 and 5% and between 2.5% and 3.5% in Sydney while shopping malls can manage between 4.5% and 5.5% in Tokyo and approximately 2.5% and 4% in Sydney.
Hemnani has further elaborated, "The world's top suppliers of alternative goods include REITs, equity funds, investment managers, immobilizers and developers. In 2016, these five investor groups alone invested more than $43 billion in the market. In Asia Pacific we see a similar trend where developers and private equity spend more capital in alternatives. In countries like Japan, REITs are especially involved in the field of elderly care."
The JLL report explains that alternatives in Asia-Pacific are good and will continue to develop because of significant demographic changes such as urbanization, aging, increasing domestic assets and the use of technology in the region.
Asset classes such as education and self-storage will benefit from the growth of the urban population of Asia Pacific to more than 400 million by 2027. Rapid adoption of smartphones, cloud computing and the Internet of Things would fuel an increase in the demand for data centres, which will be supported by 560 million new Internet users in the area over the next decade.
The population will rise by a further 146 million over the next 10 years, contributing to the expansion of senior homes and nursing homes.
Before the Challenge
Despite these powerful demand drivers, a number of entry barriers still exist. Old care and data centers are usually heavily regulated by Governments, so they can require that they be managed in accordance with local law. In Asia-Pacific, various alternative sectors face different maturities, enabling the basic concepts of company and organizational ability to be understood as an obstacle. It is clear, however, that there are significant opportunities.
Hemnani says, He says, "With urban development across the nation growing rapidly, international schools in the Asia-Pacific region are expected to rise 3-4 times over the next 15 years, achieving the target of 10 million students. In Australia, mainland China, Hong Kong, India and South-East Asia, schooling and lodging will be improved."
"The increase in the aging of the population also means that the higher housing markets will be successful, particularly in Japan and China, because these markets offer tremendous potential for growth."
Denis Ma, Head of JLL Research, said, "In Hong Kong, record high prices and ultra-low returns on property are driving increasing investors to look at the alternative local property. Student lodging, senior residential accommodation, coexistence, school, self-storage, car parking and data centres. Alternatives can often yield a rent rate between 100 and 2 000 base points higher for investors than traditional assets."