Key Takeaways
- • Brian Chinappi, partner and head of Asia real estate at Actis (Hong Kong), identifies four structural drivers of Asian real estate: demographic shifts, deficient supply, digital disruption, and demand for yield.
- • Chinappi argues the COVID-19 shock has strengthened several of these secular tailwinds rather than eroding the long-term case for Asian real estate.
- • Asia is cited as on track to account for 90 percent of the next billion people entering the global middle class, according to the World Economic Forum.
- • Actis cites a 50 percent compound annual growth rate in data usage across major Asian markets over the 10 years to 2020, per PwC, supporting data-centre demand; its Chayora Holdings investment funds a hyperscale campus in Tianjin.
- • Execution capability, including local teams, operator partnerships and modest leverage, is presented as critical to capturing these opportunities.
Summary
Brian Chinappi, partner and head of Asia real estate at Actis, writes that the COVID-19 outbreak has disrupted global economies and will weigh on many sectors in the short term, but that four major trends in real estate (demographic shifts, deficient supply, digital disruption and demand for yield) remain intact across Asian growth markets. He argues that investment opportunities persist in areas underpinned by long-term fundamentals, and that Asian real estate is one such opportunity. Chinappi points to major cities in China, South Korea, India and Southeast Asia, which he says benefit from large economies, deep middle-class populations and modern infrastructure.
On demographics, Chinappi cites United Nations estimates of more than a 20 percent increase in urban populations in the decade to 2020, and World Economic Forum projections that Asia will account for 90 percent of the next billion middle-class entrants. He notes that affordability is improving in some markets, citing World Bank figures showing Vietnam's poverty rate falling from more than 70 percent in 2002 to less than 6 percent in 2018, with affordability rising in Ho Chi Minh City, Pune and Bangalore.
On digital disruption, Chinappi cites PwC data showing a 50 percent compound annual growth rate in data usage across major Asian markets over the decade to 2020, driving demand for data centres. Actis's investment in Chayora Holdings is funding a hyperscale campus in Tianjin, China, and a land bank in Tianjin and Shanghai. Citing Euromonitor, he says online retail growth across Asia will have grown tenfold in the decade to 2020, increasing demand for e-commerce logistics. He also highlights opportunities in distressed Chinese tier 1 retail malls, where some owners face financial stress, which could be repositioned toward dining, entertainment, education and healthcare.
On deficient supply, Chinappi argues developers have overbuilt grade A space while cost-effective, quality space is in short supply. He cites Actis's Young City development in southwest Seoul, a more than 99,000 square metre office project acquired off-market from a government agency and developed with SK D&D. When Actis analysed the market in 2014, grade A vacancy exceeded 20 percent, but back-office space was undersupplied. The completed building, finished in 2017, is reported to be 98 percent leased.
On yield, Chinappi notes persistently low interest rates and a long-term global investor shift toward high-quality real estate, while Asian institutional investors remain under-exposed. He expects local institutions to increase allocations once economies absorb the COVID-19 shock, and says high-quality institutional assets remain scarce. He concludes that execution capability, local presence, responsible investing and a strategy focused on affordability, partner quality and modest leverage will be essential as demand recovers.
On demographics, Chinappi cites United Nations estimates of more than a 20 percent increase in urban populations in the decade to 2020, and World Economic Forum projections that Asia will account for 90 percent of the next billion middle-class entrants. He notes that affordability is improving in some markets, citing World Bank figures showing Vietnam's poverty rate falling from more than 70 percent in 2002 to less than 6 percent in 2018, with affordability rising in Ho Chi Minh City, Pune and Bangalore.
On digital disruption, Chinappi cites PwC data showing a 50 percent compound annual growth rate in data usage across major Asian markets over the decade to 2020, driving demand for data centres. Actis's investment in Chayora Holdings is funding a hyperscale campus in Tianjin, China, and a land bank in Tianjin and Shanghai. Citing Euromonitor, he says online retail growth across Asia will have grown tenfold in the decade to 2020, increasing demand for e-commerce logistics. He also highlights opportunities in distressed Chinese tier 1 retail malls, where some owners face financial stress, which could be repositioned toward dining, entertainment, education and healthcare.
On deficient supply, Chinappi argues developers have overbuilt grade A space while cost-effective, quality space is in short supply. He cites Actis's Young City development in southwest Seoul, a more than 99,000 square metre office project acquired off-market from a government agency and developed with SK D&D. When Actis analysed the market in 2014, grade A vacancy exceeded 20 percent, but back-office space was undersupplied. The completed building, finished in 2017, is reported to be 98 percent leased.
On yield, Chinappi notes persistently low interest rates and a long-term global investor shift toward high-quality real estate, while Asian institutional investors remain under-exposed. He expects local institutions to increase allocations once economies absorb the COVID-19 shock, and says high-quality institutional assets remain scarce. He concludes that execution capability, local presence, responsible investing and a strategy focused on affordability, partner quality and modest leverage will be essential as demand recovers.
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