Tariff tensions cloud global property outlook, but Apac a bright spot amid uncertainty
[SINGAPORE] Heightened uncertainty stemming from US tariff policies could weigh on the global real estate market, but experts said pockets of opportunity remain in the Asia-Pacific, especially in the living, logistics and healthcare sectors.
Speaking to The Business Times, Chad Phillips, global head of real estate at asset manager Nuveen, noted that real estate values worldwide have corrected by around 16 per cent since 2022, following interest-rate hikes that year.
This not only helps to de-risk the asset class, but it also puts the property investment market in a relatively strong position, even as tariff uncertainties weigh on the economy and real estate, said Phillips.
Additionally, real estate supply has been kept largely in check, and occupancies remain high in most property types, said Vincent Chew, portfolio manager of PGIM Real Estate's Asia core strategy.
The cost of capital is also stabilising and 'debt is plentiful across a diverse array of lenders', he added.
Heightened uncertainty may therefore dampen the market's near-term outlook, but Chew believes that it will not derail real estate recovery and growth. 'We remain confident that 2025 is a good vintage to go into the next cycle of investing.'
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Apac rising stars
According to BlackRock head of Apac real estate Hamish MacDonald, the Apac region as a whole offers a 'compelling investment landscape', especially sectors that are still in the early stages of institutionalisation.
'Many of these strategies are what we refer to as the 'Apac lag' – roughly a decade behind the growth trajectory seen in the US,' said MacDonald.
He sees 'enduring demand' in living and select residential segments, last-mile logistics, as well as alternative sectors such as life sciences, self-storage and childcare centres. These are all underpinned by long-term demographic and structural trends, he added.
For instance, Phillips pointed out that the significant presence of Gen Z youth and rising life expectancy in the region has resulted in stronger demand for niche asset classes, such as purpose-built student accommodation (PBSA), as well as senior living and healthcare facilities.
Nuveen has therefore allocated significant capital to Australia's PBSA sector, driven by a growing middle class and expanding demographic of 15-to-19-year-olds.
There is strong potential in the Japanese senior living sector as well, since the country's public insurance system covers 90 per cent of costs for residential care services, said Phillips.
Logistics in the making
Despite current trade tensions, Phillips also sees a bright future for the logistics markets in South Korea, Japan and Australia, fuelled by steady e-commerce growth and constrained new supply.
But experts warn that the sector is not entirely immune to macroeconomic risks.
Chew noted that sentiment towards logistics has become increasingly cautious due to the impact of tariffs on industries exporting to the US and potential disruptions to supply chains.
That said, market dynamics can vary greatly. Demand in Australia, for example, should see relatively minimal impact since exports to the US are quite low, said Chew.
Just last month, PGIM Real Estate and Cadence Property Group acquired the last-mile logistics and infrastructure asset St Mary's Intermodal Terminal in Sydney for A$145 million (S$120.6 million).
Investor appetite has also grown for data centres, fuelled by the rise of artificial intelligence (AI) and growth in data consumption, among other factors.
Markets such as Japan, South Korea, Australia and Singapore are well-positioned to benefit from the data centre boom, thanks to AI, cloud computing and 5G roll-out, said Josh Daitch, ESR group chief investment officer.
'Rising concerns around data sovereignty in Apac are accelerating demand for locally hosted data centres,' he added.
He also noted that data centres, as a nascent asset class, are trading at a relative discount to traditional logistics real estate. 'This is reminiscent of the emergence… of the logistics sector, which used to trade at discounted cap rates before investors evolved their understanding of the long-term strategic value and stability of the asset class.'
On the home front, Nuveen chief investment officer and Apac head for real estate Louise Kavanagh believes that the office sector, in particular, will be supported by low vacancies and limited new supply in the coming years.
'For all of the issues which (the sector) faces, demand far outstrips supply for the highest-quality assets in the best locations,' said Chew. 'Generally, occupiers want less space, but the space they do want needs to be high-specification.'
Andrew Lee, BlackRock's head of investments for Singapore real estate, added that the living sectors – especially serviced apartments – may be less exposed to macro volatility.
This is thanks in part to structural shortage in supply and strong demand from expatriates as well as various longer-term visitors, he said.
Beyond traditional real estate, Phillips said the current environment is especially conducive to debt strategies.
'Increased bank regulation and capital rules, higher funding costs and the retail focus of commercial banks are working in favour of non-bank lenders gaining further traction in the (Australia and New Zealand) debt market,' he explained.
'Add to it the current economic uncertainty, higher cash rates, equity pricing volatility and capital shortages, and it provides an opportune time for commercial real estate debt investment.'
Nuveen now sees stronger demand for its credit products and core products, with investors drawn to their stability and income components.
This has brought a return of investor interest to Australia's necessity-based retail sector, with investment activity growing in the past years as yields adjusted to the 6 to 7 per cent range, said Phillips.
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