According to research conducted by JLL in August 2020 titled “Reimagining Asia Pacific investment strategies”, the impact of COVID-19 has strengthened key investment themes and trends that existed before the pandemic. Despite the short-term uncertainty, key sectors and subsectors continue to emerge. The top three sectors in which JLL survey respondents expect to increase their exposure by 2021 are:
Logistics: Given the strong underlying drivers for logistics real estate, around 81% of survey respondents plan on increasing their exposure to this sector by the end of 2021. Those that plan on increasing their exposure to logistics will also have a greater focus on platform and entity levels deals. This will allow investors to quickly gain scale, an important investment consideration for investors in logistics real estate.
Living investment sector: Around 58% of survey respondents plan on increasing their exposure to the living sector in the Asia Pacific by the end of 2021. While still a very small sector in the Asia Pacific outside of Japan, institutional interest is rising rapidly. And while Japan remains the key target for regional and global institutional capital, there are nascent living sectors in Australia, South Korea, and China.
Alternatives: Relatively low lot sizes and superior returns make alternative asset classes such as data centres, purpose-built student accommodation, and health and aged care assets, amongst others, an attractive investment option for many investors. According to the survey, around 44% of respondents plan on increasing their exposure to the alternatives sector by the end of 2021.
While JLL’s research expects investors to increase their focus to these sectors, commitment to investing in traditional core sectors remains.
The office is a cornerstone for many global and regional investment strategies, and according to the survey results, will remain one of the most active investment asset classes in 2020 and 2021. Retail is a sector that will likely continue to be out of favour over the short term. Around 44% of survey respondents are looking to reduce their exposure to this sector by the end of 2021.
Centres with a larger proportion of turnover in non-discretionary retail (e.g. neighbourhood type retail centres) will remain resilient beyond the current period, as well as large flagship centres that act as entertainment and social gathering places for communities. Retailers will also place a greater emphasis on creating stores with a unique offline offering and strengthen the omnichannel retail experience.
Hotel is another sector that has been deeply impacted short term by COVID-19. Of survey respondents who have some existing exposure to hotels, almost 46% plan on reducing their exposure by the end of 2021. Nonetheless, on the assumption that a COVID-19 vaccine is developed, we expect to see a strong continued commitment to this sector going forward. While reduced global travel is a short-term headwind, the domestic travel market may pick up the slack, with domestic tourism expected to be a net beneficiary across many countries.
