Economies around the world have been damaged more severely than any peacetime event since World War II. Although none of us predicted a pandemic, it took this kind of tail-risk event to derail the Asia-Pacific region, the fastest growing region in the world. However, the combination of high levels of trust in Asia Pacific governments, an earlier start to the downturn and recovery, unprecedented monetary and fiscal stimulus packages, and the region’s important role in global supply chains, especially China lends resilience to the region. These macro factors, combined with high-frequency indicators, shed light upon our outlook for Asia Pacific economies and real estate markets, despite the uncertain duration of the pandemic, according to LaSalle’s mid-year Investment Strategy Annual (ISA) report.
LaSalle clients can view the full report at: https://www.lasalle.com/research/reports/2020-isa-mid-year-update
Asia Pacific is likely to come out of the pandemic ahead of other regions due to the relative success of their public health policies. Nonetheless, like other regions, we expect to see setbacks caused by new outbreaks from time to time. LaSalle’s relative ranking of major Asia Pacific economies post COVID-19 recovery has China leading, followed by Japan, South Korea, Singapore, Australia and Hong Kong. Looking forward, larger the domestic economy, the stronger the pace of the country’s recovery is expected to be, with China, Japan and South Korea driving the recovery.
The pandemic accelerated existing trends that we have been following for many years in Asia Pacific, as well as several incipient trends, including: the rise of logistics, the demise of brick-and-mortar retailers, the market segmentation of residential properties (luxury, urban high-rise, mid-rise suburban, workforce, active adult, etc.), the mainstreaming of alternative or niche sectors, and the rising importance of technology as a driver for many real estate decisions. We continue to favour the logistics sector in the region. Looking forward we believe that professionally managed rental apartments present an interesting opportunity to consider in several Asia Pacific countries. With the exception of Japan, the apartment sector is not institutionalised in most parts of the region and it could be attractive to offer better amenities for residents and enable them to work from home in a better environment.
Jacques Gordon, Global Head of Research & Strategy at LaSalle Investment Management said, “The COVID-19 crisis and the ensuing global recession emphasize important lessons about portfolio construction. Property types respond very differently to global macro events, and their financial characteristics are affected by interest rate regimes, pandemics, or technology trends, which don’t respect national borders. This means that the performance of the principal property types is more dispersed than we have ever seen. During the cap rate compression era, all the main property types tended to converge in terms of performance. Now, in this downturn, the different risk-return characteristics of each property type come to the fore.
We believe that the key to making good investment decisions during a period of radical uncertainty is to avoid letting “recency bias” control your thought process. In other words, looking through and ahead of a crisis, like the current pandemic, will be important in order to survive and thrive. We believe all investors and indeed, societies-at-large, face the challenge to look beyond the darkest hour. Real estate, because it serves all industries and all segments of society, must pay especially close attention to the difference between temporary and permanent changes”.
Elysia Tse, Head of Research & Strategy for Asia Pacific at LaSalle Investment Management said, “Throughout the pandemic, real estate capital markets in Asia Pacific have generally been stable. Most investors are taking a wait-and-see view on new investments and focusing on existing portfolios. We have not seen substantial pricing discounts in Asia Pacific, despite the fact that we are in the worst recession of decades.
The biggest unknown lies in the outlook for property cash flows and Net Operating Income (NOI). If resurgences of infections get much worse than today or last much longer than anticipated, NOI could deteriorate further than anticipated—pricing movements could be partly driven by anticipation. Furthermore, the increase in capital market volatility is expected to drive flight-to-safety, keeping cap rates of core assets low. This trend is projected to widen the pricing differences between assets with secured cash flows and those without them. LaSalle’s logistics sector strategy in Asia Pacific has worked out well for us going into this pandemic. The logistics sector, although not immune to the impact of the COVID-19 pandemic, has been a relative winner of this global demand shock. In sum, the COVID-19 pandemic presents risks, but also potential opportunities in Asia Pacific, as investment managers play the arbitrage between the “haves” and the “have nots”.
About LaSalle Investment Management
LaSalle Investment Management is one of the world’s leading real estate investment managers. On a global basis, we manage approximately $77 billion of assets in private equity, debt and public real estate investments as of Q4 2021. The firm sponsors a complete range of investment vehicles including open- and closed-end funds, separate accounts and indirect investments. Our diverse client base includes public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from across the globe. For more information please visit www.lasalle.com and LinkedIn.
NOTE: This information discussed above is based on the market analysis and expectations of LaSalle and should not be relied upon by the reader as research or investment advice regarding LaSalle funds or any issuer or security in particular. The information presented herein is for illustrative and educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy in any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will only be made to certain qualified investors by means of a private placement memorandum or applicable offering document and in accordance with applicable laws and regulations. Past performance is not indicative of future results, nor should any statements herein be construed as a prediction or guarantee of future results.
Elysia Tse, Head of Asia Pacific Research and Strategy discusses cross-border investment in the Asia Pacific real estate market and how increasing transparency in China and India is driving investment growth in both countries.
LaSalle Investment Management (“LaSalle”) today announced it has completed the first close of LaSalle China Logistics Venture (“LCLV” or the “Fund”). The Fund and its co-investment vehicle have received initial capital commitments of US$681 million. LaSalle’s first dedicated China logistics vehicle has seen strong demand from investors, attracting a diverse mix of investors from Europe, the Middle East, and Asia. The Fund retained support from existing LaSalle investors as well as attracting capital from investors which are new to LaSalle.
LCLV will invest across tier I and tier II cities located in China’s key logistics regions, including the Yangtze River Delta (Greater Shanghai), Bohai Bay (Greater Beijing) and Greater Bay (South China). The Fund seeks to develop and build a diversified portfolio of modern logistics facilities in markets with strong fundamentals, capturing attractive development margins. LCLV also seeks to acquire and reposition underperforming logistics assets. The Fund will also look to invest in cold chain logistics, benefiting from the rising demand from the fresh food sector in China.
LCLV has recently acquired two development sites located in prime Shanghai satellite markets of Kunshan and Jiaxing. It has also acquired three stabilized logistics assets in Wujiang, Tianjin and Huizhou.
LaSalle has a long track record in China logistics, completing more than US$1.5 billion of transactions since 2008. LaSalle currently manages over US$4 billion of logistics investments in Asia, across key markets including China, Japan and Korea.
Mark Gabbay, CEO Asia Pacific of LaSalle Investment Management, said: “With LCLV, we are responding to strong investor appetite for quality logistics assets. The quick completion of our first close is a testament to our strong track record and to the attractive returns available in the logistics sector in China.”
Claire Tang, Head of Greater China at LaSalle Investment Management, said: “Growth in domestic consumption, and e-commerce in particular, will continue to boost demand for modern logistics properties. With the closing of our new Fund, we will draw upon our regional resources and local expertise in the sector to pursue compelling investment opportunities and expand our investment footprint.”
Yen Tjin Chan, Fund Manager, LaSalle China Logistics Venture, said: “We are pleased with the fundraising success of LCLV. We seek to continue to leverage on our strong on-the ground team as well our existing partnerships to develop and acquire a diversified portfolio of logistics assets.”
About LaSalle Investment Management
LaSalle Investment Management is one of the world’s leading real estate investment managers. On a global basis, we manage approximately $77 billion of assets in private equity, debt and public real estate investments as of Q4 2021. The firm sponsors a complete range of investment vehicles including open- and closed-end funds, separate accounts and indirect investments. Our diverse client base includes public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from across the globe. For more information please visit www.lasalle.com and LinkedIn.
NOTE: This information discussed above is based on the market analysis and expectations of LaSalle and should not be relied upon by the reader as research or investment advice regarding LaSalle funds or any issuer or security in particular. The information presented herein is for illustrative and educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy in any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will only be made to certain qualified investors by means of a private placement memorandum or applicable offering document and in accordance with applicable laws and regulations. Past performance is not indicative of future results, nor should any statements herein be construed as a prediction or guarantee of future results.
MACROECONOMIC ENVIRONMENT
REAL ESTATE MARKETS
INVESTMENT MARKETS
The outbreak of a new infectious disease, a slowing global economy, ongoing trade negotiations, high asset valuations, and disruptive technology may act as headwinds to favorable real estate performance. At the same time, low-to-zero interest rates, abundant liquidity, rising institutional allocation to real estate, improving real estate market transparency, and more measures for additional monetary and fiscal stimulus among major Asia Pacific – are all tailwinds driving favorable real estate performance in the region, according to LaSalle Investment Management’s Investment Strategy Annual (ISA) 2020. Our market sector recommendations for the Asia Pacific are more targeted for 2020 than prior years. Individual countries within the region may have different responses to these potential headwinds and tailwinds.
Uncertainty remains, as Asia Pacific contends with the trade tensions and exogenous shocks such as the Coronavirus (“CoViD-19”) outbreak. Drawing precise conclusion on the impact of the CoViD-19 outbreak on economic growth and real estate markets is highly speculative at this stage. There is a probability that the short-term impact of CoViD-19 on the Chinese and global economies could be greater than that of SARS, but the rebound/recovery could also be faster than that of SARS. It is still too early to determine and it depends on when CoViD-19 can be contained at a global level.
Nonetheless, there are many reasons for optimism. LaSalle believes that over the next two to three years, decelerating global economic conditions are most likely including in Asia Pacific. However, Asia Pacific is expected to rebound and remain the fastest growing region due to the region’s large population base, fast population growth, rapid urbanization, and its rising middle class. In particular, China remains a key driver of global economic growth over the medium and long term, despite short-term weaknesses.
Real estate, particularly income-generating properties, is favored by investors who are taking a defensive position. Strong liquidity and low-to-zero interest rates are expected to drive the attractiveness of real estate yields in multi-asset portfolios. The attractiveness of real estate is expected to keep prices high in the near term. However, as the economic slowdown weighs on real estate income growth, real estate prices are unlikely to experience substantial run-ups in the near term. In 2020, total returns are expected to decline from the past few years and be primarily driven by occupier fundamentals rather than strong price appreciation. Real estate occupier market supply and demand dynamics are increasingly important going forward.
Jacques Gordon, Global Head of Research and Strategy at LaSalle, said: “After 10 years of unprecedented, steady growth following the Global Financial Crisis, we anticipate that the next few years will bring more headwinds to the world’s real estate markets due to a progressively slowing global economy, ongoing trade and treaty disagreements, divisive domestic politics, high asset valuations and disruptive technology.”
He continues to explain, “However, we do not expect the generally positive current environment to quickly deteriorate due to a mix of macro tailwinds. For instance, low inflation, falling interest rates and balanced fundamentals in most developed countries create ideal conditions for real estate to thrive. And, while technology poses some level of risk, it also allows for more informed decision making and, in many cases, makes properties more attractive to their end users. Even if the potential for a sharp global reversal is unlikely, investors still need to proceed with caution and pay close attention to the macro forces driving each country and the micro-conditions for each specific asset in their portfolios.”
Elysia Tse, Head of Asia Pacific Research and Strategy at LaSalle, said: “This year our market/sector recommendations for the Asia Pacific are more targeted than those in prior years. We continue to favor the Japan real estate market, as current strong real estate market fundamentals in Japan, particularly in Tokyo and Osaka office markets, offer more room to cushion shocks or weaknesses in the near term.”
“We also see areas of relative strength, primarily in the Asia Pacific industrial sector with strong domestic consumption, the need for better designed and equipped facilities to handle the rapid expansion of e-commerce, distribution to major population centers, and rising demand for cold storage facilities to enable more efficient food processing and delivery to consumers.”
About LaSalle Investment Management
LaSalle Investment Management is one of the world’s leading real estate investment managers. On a global basis, we manage approximately $77 billion of assets in private equity, debt and public real estate investments as of Q4 2021. The firm sponsors a complete range of investment vehicles including open- and closed-end funds, separate accounts and indirect investments. Our diverse client base includes public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from across the globe. For more information please visit www.lasalle.com and LinkedIn.
NOTE: This information discussed above is based on the market analysis and expectations of LaSalle and should not be relied upon by the reader as research or investment advice regarding LaSalle funds or any issuer or security in particular. The information presented herein is for illustrative and educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy in any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will only be made to certain qualified investors by means of a private placement memorandum or applicable offering document and in accordance with applicable laws and regulations. Past performance is not indicative of future results, nor should any statements herein be construed as a prediction or guarantee of future results.
LaSalle Investment Management (“LaSalle”), the global real estate investment manager, is pleased to announce the launch of the LaSalle Japan Property Fund (the “Fund”), a private open-ended core real estate fund.
The Fund invests in core properties in Japan and launched with JPY 61 billion (US$560 million) of initial equity commitments from Japanese investors along with loans extended by major Japanese financial institutions.
The initial portfolio includes six assets that have been selected based on LaSalle’s Research and Strategy framework of Demographic, Technology and Urbanization (“DTU”), for a purchase price of JPY 105 billion (US$965 million). The Fund will invest mainly in the Japanese cities of Tokyo, Osaka, Nagoya and Fukuoka in diversified assets across the office, industrial, retail and multifamily sectors. The Fund aims to grow to JPY 200 billion (US$1.8 billion) in three years and JPY 300 billion (US$2.7 billion) in five years.
The Fund will leverage the established platform of LaSalle, one of the world’s leading dedicated real estate firms, with broad experience managing diversified open-ended core funds, including similar offerings in the US, Canada and Europe. The Fund held its initial closing with commitments from Japanese investors and will target capital from international investors in the future.
Mark Gabbay, CEO, LaSalle Asia Pacific, said: “We are excited to launch our first private open-ended core fund in Asia with a sizeable initial portfolio that, given its high asset quality, potential to generate strong recurring cash flows and desirable locations, directly aligns with the vehicle’s investment parameters. Japan’s large, transparent real estate market is one we know very well, providing us with a sustainable competitive advantage as we invest into core assets. This advances some of our global and Asia Pacific regional strategies which is to target core assets with stable income generation and to offer our global investors access to a suite of products comprising a diverse range of real estate investments.”
Keith Fujii, CEO, LaSalle Japan, said: “The creation of the LaSalle Japan Property Fund following the launch of the publicly traded J-REIT in 2016- LaSalle Logiport REIT, enhances our products with core investment strategies in Japan. Along with our strength in opportunistic investments and asset development capabilities, we are strong believers in the long-term potential of the Japanese real estate market. We are an experienced team of professionals with a strong track-record of transactional execution, leasing, asset management and investment performance in the Japanese market and aim to build a high-quality portfolio of income-producing assets.”
Ryota Morioka, Fund Manager, LaSalle Japan Property Fund, said: “Strong market fundamentals across Japan, combined with transparent capital markets, depth of existing stock and high barriers-to-entry make the core real estate market a compelling strategy in the current environment. For LaSalle Japan Property Fund, we seek to leverage our existing relationships in the office, retail, industrial and multifamily sectors to create a high-quality, diversified portfolio of stabilized core assets.”
This release does not constitute an offer to sell or a solicitation of an offer to buy an interest in the Fund. A private offering of interests in the relevant Fund vehicle is being made only to certain qualified investors pursuant to the applicable confidential private placement memorandum. Within the European Economic Area (EEA), the Fund is only available to professional investors in EEA member states where marketing has been registered or authorized in accordance with local requirements. A full list of the relevant EEA member states is available from LaSalle on request.
About LaSalle Investment Management
LaSalle Investment Management is one of the world’s leading real estate investment managers. On a global basis, we manage approximately $77 billion of assets in private equity, debt and public real estate investments as of Q4 2021. The firm sponsors a complete range of investment vehicles including open- and closed-end funds, separate accounts and indirect investments. Our diverse client base includes public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from across the globe. For more information please visit www.lasalle.com and LinkedIn.
NOTE: This information discussed above is based on the market analysis and expectations of LaSalle and should not be relied upon by the reader as research or investment advice regarding LaSalle funds or any issuer or security in particular. The information presented herein is for illustrative and educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy in any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will only be made to certain qualified investors by means of a private placement memorandum or applicable offering document and in accordance with applicable laws and regulations. Past performance is not indicative of future results, nor should any statements herein be construed as a prediction or guarantee of future results.
LaSalle Investment Management (“LaSalle”) announced its completion of the acquisition and leasing of Logiport West Anseong located in Anseong City, South Korea. The project’s gross floor area is 14,146 pyung (approximately 503,400 sq.ft.) and the construction was completed in December 2018.
Logiport West Anseong Highlights:
Steve Hyung Kim, LaSalle Investment Management Senior Managing Director, Head of Acquisition & Asset Management – South Korea commented, “We are pleased with the acquisition and leasing completion of Logiport West Anseong, LaSalle’s first warehouse investment with temperature-controlled storage capabilities in South Korea. We believe the growth in e-commerce and logistics service provider sectors will continue to drive occupier demand, especially for the higher quality modern warehouses in “last mile” locations. We plan to selectively develop and acquire additional logistics facilities going-forward.”
Se Hwan Oh, LaSalle Investment Management Senior Vice President, Development & Asset Management – South Korea said, “We are excited with the acquisition of Logiport West Anseong, a four-level modern mixed-use logistics property with truck access to all floors built to a high specification. With a healthy leasing market as well as the quality and location, it was significantly pre-leased with a well-diversified sector mix. We see continued demand for cold storage space in the market, and look forward to supporting the needs of our customers.”
As of today, LaSalle manages approximately US$3.9 billion AUM in industrial assets across the Asia Pacific region.
About LaSalle Investment Management
LaSalle Investment Management is one of the world’s leading real estate investment managers. On a global basis, we manage approximately $77 billion of assets in private equity, debt and public real estate investments as of Q4 2021. The firm sponsors a complete range of investment vehicles including open- and closed-end funds, separate accounts and indirect investments. Our diverse client base includes public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from across the globe. For more information please visit www.lasalle.com and LinkedIn.
NOTE: This information discussed above is based on the market analysis and expectations of LaSalle and should not be relied upon by the reader as research or investment advice regarding LaSalle funds or any issuer or security in particular. The information presented herein is for illustrative and educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy in any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will only be made to certain qualified investors by means of a private placement memorandum or applicable offering document and in accordance with applicable laws and regulations. Past performance is not indicative of future results, nor should any statements herein be construed as a prediction or guarantee of future results.
LaSalle Investment Management (LaSalle) has published the Mid-Year update for the 2019 Investment Strategy Annual. Under a slow growth, low inflation, and low interest rate environment, LaSalle’s regional real estate strategy focuses on sectors, markets and locations where domestic consumption growth supports real estate demand. This press release focuses on the Asia Pacific regional outlook.
LaSalle expects a weaker macro environment in the next 6-12 months than the past few years, partly due to the U.S.-China trade war and the maturing global economic cycle. However, a financial crisis or a regional recession is not in LaSalle’s base case. Japan is likely to be more resilient than other major Asia Pacific countries. China is expected to experience some short-term weaknesses but remains positive on the mid to long-term as the country has multiple monetary and fiscal tools to offset the negative impact from the trade war. Since market outlook has shifted to monetary easing, capital market liquidity is expected to remain high in the region, barring any external disruption.
Elysia Tse, Head of Asia Pacific Research and Strategy at LaSalle says: “Although capital market volatility is increasing, real estate investors are likely to continue to invest but at a slower pace with discipline. For core strategies, investors will need to focus on areas with relative resiliency and protecting the durability of cash flows. For higher-return strategies, investors are likely to seek real estate segments and locations that could outgrow the broad economy. The focus of higher-return strategies is shifting from maximizing returns to narrowing the dispersion of return outcomes.”
“The focuses on asset management will be maintaining flexibility on holding periods and asset-level business plans, and identifying early lease renewals or early exits opportunities. The focuses for new acquisitions will be the location and each asset’s strength that matches stringent underwriting criteria.”
Property Sector insights in Asia Pacific:
About LaSalle Investment Management
LaSalle Investment Management is one of the world’s leading real estate investment managers. On a global basis, we manage approximately $77 billion of assets in private equity, debt and public real estate investments as of Q4 2021. The firm sponsors a complete range of investment vehicles including open- and closed-end funds, separate accounts and indirect investments. Our diverse client base includes public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from across the globe. For more information please visit www.lasalle.com and LinkedIn.
NOTE: This information discussed above is based on the market analysis and expectations of LaSalle and should not be relied upon by the reader as research or investment advice regarding LaSalle funds or any issuer or security in particular. The information presented herein is for illustrative and educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy in any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will only be made to certain qualified investors by means of a private placement memorandum or applicable offering document and in accordance with applicable laws and regulations. Past performance is not indicative of future results, nor should any statements herein be construed as a prediction or guarantee of future results.
LaSalle Investment Management (“LaSalle”) today announces it has commenced construction on five new LaSalle Logiport logistics developments in Shanghai Qingpu, Suzhou, Jiaxing, Chongqing and Xi’an. The projects are expected to deliver leasable GFA of 359,000 sqm upon completion in early 2020.
LaSalle Investment Management (“LaSalle”) today announces it has commenced construction on five new LaSalle Logiport logistics developments in Shanghai Qingpu, Suzhou, Jiaxing, Chongqing and Xi’an. The projects are expected to deliver leasable GFA of 359,000sqm upon completion in early 2020.
Development highlights
LaSalle Logiport Shanghai Qingpu Logistics Park
LaSalle Logiport Suzhou Wangting Logistics Park
LaSalle Logiport Jiaxing Pinghu Logistics Park
LaSalle Logiport Chongqing Airport Logistics Park
LaSalle Logiport Xian Airport Logistics Park
Alex Li, LaSalle Investment Management Senior Vice President, Logistics Leasing and Business Development said: “We are very excited to have these new developments in China. Strong domestic consumption will continue to drive demand for modern facilities in China. We have seen significant pre-leasing activity on our development portfolio. Our strong track record and development pipeline shows LaSalle’s extensive network in China and the value creation we can provide to our customers. We look forward to supporting our clients as their businesses continue to grow.”
Claire Tang, LaSalle Investment Management Head of Greater China commented: “The market fundamentals for China logistics remain compelling. Consumer purchasing driven by technology and e-commerce has been rapidly pushing up the demand for modern logistics facilities located in top tier markets. We look to continue expanding our logistics portfolio footprint in China.”
She added “Investing in modern logistics facilities has been a key focus for LaSalle in the region, and we plan to further capture acquisition and development opportunities in this sector in China moving forward.”
As of today, LaSalle has developed over 5.6 million sqm of modern logistics warehouses in Japan, China and South Korea, and currently manages approximately US$3 billion AUM in high-quality industrial assets across the Asia Pacific region.
About LaSalle Investment Management
LaSalle Investment Management is one of the world’s leading real estate investment managers. On a global basis, we manage approximately $77 billion of assets in private equity, debt and public real estate investments as of Q4 2021. The firm sponsors a complete range of investment vehicles including open- and closed-end funds, separate accounts and indirect investments. Our diverse client base includes public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from across the globe. For more information please visit www.lasalle.com and LinkedIn.
NOTE: This information discussed above is based on the market analysis and expectations of LaSalle and should not be relied upon by the reader as research or investment advice regarding LaSalle funds or any issuer or security in particular. The information presented herein is for illustrative and educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy in any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will only be made to certain qualified investors by means of a private placement memorandum or applicable offering document and in accordance with applicable laws and regulations. Past performance is not indicative of future results, nor should any statements herein be construed as a prediction or guarantee of future results.
China’s economy is expected to grow at a slower pace going forward. This reflects the expected trend of slower growth rates as a country’s economy matures, and is the most likely scenario, despite the threat of the U.S.-China trade war. Even if China’s GDP only grows at 5-6% per annum, it would still be one of the fastest growing large economies in the world. China is the largest economy in Asia Pacific and the second largest economy in the world. Based on LaSalle’s estimate, the incremental GDP value that China is projected to create from the end of 2018 to 2019 is equivalent to the overall GDP of Australia, if the Chinese economy grows by 6% in 2019; and twice of Sweden’s GDP if the Chinese economy grows by 5% in 2019. In other words, China will be adding the equivalent of one Australia or two Swedens from the end of 2018 to 2019, if the economy grows by 5- 6% in 2019.
Domestic consumption is the dominant driver of economic growth, and this trend is expected to continue in the medium and long term. LaSalle believes that the solid domestic fundamentals and structural changes that are underway in China provide a favorable risk-adjusted return profile to invest in and develop modern warehouse facilities. Key themes for modern warehouse investment opportunities in China include the following:
Tekka Place, an upcoming hospitality-and-retail integrated development comprising a ten-storey main block and seven-storey annex block with rooftop deck at 2 Serangoon Road, is on schedule for completion by the end of the year. It celebrated the milestone at the topping out ceremony at the site today graced by Minister for Communications and Information, Mr S. Iswaran.
From left to right:
Mr Rajachandra Kumar, Chairman of the Little India Shopkeepers and Heritage Association (LISHA); Mr Tan Wey Pin, Managing Director, MD, Lum Chang Building Contractors; Mr Raymond Lum, Executive Chairman, Lum Chang Holdings; Mr S. Iswaran, Minister for Communications and Information, Singapore; Mr Mark Gabbay, CEO and Chief Investment Officer – Asia Pacific, LaSalle Investment Management; Mr Kelvin Lum, Director, Lum Chang Holdings; Mr Kevin Goh, CEO, Ascott International
Construction of the development, awarded by the Lum Chang-LaSalle joint venture to Lum Chang Building Contractors, commenced in mid-2017. With structural works now concluded, the developers will focus on the architectural and services works of the development, in preparation for opening in the fourth quarter of 2019.
By then, this newest development at the gateway to Little India, will not only cater to the needs of nearby residents, office workers and commuters of both the North East and Downtown MRT lines, its housing of the new Citadines Rochor serviced residences, will also attract new international visitors to this cultural and heritage precinct. Its completion is timely given that Singapore tourism experienced its third consecutive year of growth, where visitor arrivals grew 6.2% in 2018 to reach 18.5 million, and numbers are set to grow in 2019 [1].
As of today, close to 50% of the net lettable retail space in the integrated development has been committed or is under advanced negotiations. Mr Kelvin Lum, Director at Lum Chang Holdings and spokesperson for the joint venture, said: “We are excited about the myriad of possibilities that Tekka Place will bring to Little India. Even though we have been approached by reputable local and international retail and F&B brands, we are selective in curating Tekka Place’s retail mix to both reflect and build on the unique cultural identity of the Little India heritage precinct, and to complement the shopkeeper businesses in the area.”
Occupying over 10,000 square feet in the mall, is XinTekka, a new food hall concept by Mr Andrew Tan, the veteran restauranteur and F&B consultant who brought fresh concepts such as PasarBella and the multi-concept Japanese eatery, Eat at Seven, at Suntec City, to Singapore. Offering a spread of local culinary favourites with a twist, XinTekka is set to be Singapore’s newest dining destination.
Mr Andrew Tan said, “XinTekka is a platform to showcase local food and products, past and present. It will offer reinterpretations of traditional local dishes that will renew our love for our iconic local food. It aims to create an eclectic, walkable urban adventure, with something for everyone while simultaneously serving as an incubator for local talent and independent start-ups.”
As part of its commitment to integrate with the Little India community, the joint venture has been actively participating in events organised by local stakeholders. For example, on top of sponsoring the Deepavali and Ponggol celebrations at Little India, the developers have also committed to a three-year main sponsorship of Art Walk Little India, an event organised by the Singapore Tourism Board (STB) and LASALLE College of the Arts. One aspect of the sponsorship involves artists from the College producing an artwork and a wall mural for installation at Tekka Place to commemorate its official opening.
Said Mr Rajakumar Chandra, Chairman of the Little India Shopkeepers and Heritage Association (LISHA), “Since the start, the owners have been proactively engaging LISHA, seeking our feedback and providing regular project updates. We very much look forward to the forthcoming completion of Tekka Place, which will add to the revitalisation of the precinct as well as the dynamism of Little India.”
[1] Source: Singapore Tourism Board media: Third Consecutive Year of Growth for Singapore Tourism Sector in 2018, dated 13 February 2019
About Tekka Place
Boasting the most strategic location in Little India, Tekka Place is set to be the new face of an area rich in culture, yet offering the best of modernity. Comprising a 10-storey Main Block and 7-storey Annex Block, the integrated development includes 320 serviced residence and an outdoor rooftop area for delightful F&B choices, along with a diverse mix of 80 curated retail outlets. In partnership with the Singapore Tourism Board and local associations, Tekka Place will also celebrate the rich heritage of the area with a space dedicated for events and activities. For more news and information, visit www.tekkaplace.sg.
About Lum Chang Holdings Limited
Lum Chang Holdings Limited was founded in the 1940s and has been listed on the Mainboard of Singapore Exchange since 1984. With its origin in construction, the Group has since evolved and grown to include businesses in property development and investment. Its construction projects span the spectrum of the industry and includes multibillion dollar civil, building and infrastructural projects both locally and overseas, while its property development portfolio includes exclusive addresses in Singapore prime residential districts and West Malaysia’s choice residential areas. For more news and information, visit www.lumchang.com.sg
About LaSalle Investment Management
LaSalle Investment Management is one of the world’s leading real estate investment managers. On a global basis, we manage approximately $77 billion of assets in private equity, debt and public real estate investments as of Q4 2021. The firm sponsors a complete range of investment vehicles including open- and closed-end funds, separate accounts and indirect investments. Our diverse client base includes public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from across the globe. For more information please visit www.lasalle.com and LinkedIn.
NOTE: This information discussed above is based on the market analysis and expectations of LaSalle and should not be relied upon by the reader as research or investment advice regarding LaSalle funds or any issuer or security in particular. The information presented herein is for illustrative and educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy in any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will only be made to certain qualified investors by means of a private placement memorandum or applicable offering document and in accordance with applicable laws and regulations. Past performance is not indicative of future results, nor should any statements herein be construed as a prediction or guarantee of future results.
According to LaSalle Investment Management’s Investment Strategy Annual (ISA) 2019, the fundamental drivers of real estate occupier markets are likely to retain their “just right” status in 2019. However, investors should expect an eventual cyclical inflection, and watch for signs of late-cycle excesses and risk taking. In 2019, investors are expected to make investment decisions in an environment of rising volatility and uncertainty. If a recession comes, leased real estate will not be immune, but it will be a “low beta”, or less sensitive financial asset.
Jacques Gordon, Global Strategist for LaSalle, said: “In order to mitigate these potential risks, the construction of real estate portfolios that employ defensive (low beta) positioning while still dedicating a portion of investment to higher (alpha-seeking) return strategies is recommended in LaSalle’s ISA 2019.”
In Asia Pacific, investors face macro risks including the U.S.-China trade war and China’s ability to sustain economic growth. However, the latter is tempered by China’s capability to introduce monetary, fiscal and regulatory stimuli, and strengthen its trade relations with the rest of the world, particularly within trade partners in Asia Pacific to offset the negative impact of trade tariffs should the trade war escalate.
As noted in LaSalle’s ISA 2019, global economic growth is cooling. With most Asia Pacific countries at the mature stage of the economic cycle, investors also should expect the region’s pace of economic growth in 2019-2020 to be below the 2017-2018 peak levels, giving rise to some risk of investor sentiment vulnerability in the capital markets. Nevertheless, labor markets in major Asia Pacific economies are healthy. Bank, corporate and household balance sheets are generally healthier than the pre-Global Financial Crisis (“pre-GFC”) period, with a few exceptions. All of the above puts the region in a good position to handle an economic slowdown if one occurs. If a recession comes to any of the major APAC economies, LaSalle believes it will be at a much lower risk level than during the GFC.
Major central banks globally are now walking on a tightrope between loose and tight monetary policies. Key messages from major central banks suggest that rate hikes are now on the back burner, as concerns over economic slowdown or recession risks rise. As a result, the risk of rising interest rates substantially pushing up capitalization rates and reducing real estate values is low. Most importantly, Asia Pacific real estate occupier and capital markets are generally more correlated with their respective domestic macroeconomic environments than with external shocks. Rental growth in most major Asia Pacific markets in 2019–21 is expected to remain positive and mostly at or slightly below their historical averages.
Over the long term, the region is poised to grow faster than other parts of the world as it transitions from an export-led region to one based more on domestic consumption, intraregional trade and tourism, urbanization and steady rise of the middle class population. The commercial real estate markets in the region are expected to remain attractive, as the region’s large and strong domestic demand base and the relatively high growth prospects by global standards are expected to continue to attract occupiers and investors alike.
Elysia Tse, Head of Asia Pacific Research and Strategy at LaSalle, said: “Supply-demand dynamics are largely healthy in major Asia Pacific real estate markets. Nonetheless, investors should expect lower returns in 2019 than in the past few years and some divergence in strong versus weak markets/sectors and primary versus secondary asset quality. As volatility increases, quality assets and flexibility become more important. Holding period and floor plan flexibility, early loan extensions, or early lease renewals all represent the optionalities needed to survive a downturn. Most importantly, preserve some capital, when possible. Be ready to take advantage of dislocation, should it occur in the real estate sector.”
Real Estate Opportunities and Investment Themes in Asia Pacific
Industrial: The outlook for the industrial sector in Asia Pacific remains favorable as demand is supported by domestic consumption and the growth of e-commerce, which is stronger than the projected GDP growth. However, supply is generally increasing in Asia Pacific markets, which requires close local-level monitoring. Market yields for logistics remain much higher than those of office properties, although they have compressed. For low risk investors, LaSalle favors logistics properties with credit tenant leases. The attractive development yield spreads are also supportive of development or build-to-core strategies, particularly in China Tier 1 cities and their satellite cities, select China Tier 2 cities, as well as the greater Seoul area. For these higher return strategies, submarket and site selection are increasingly important to manage the supply risk.
Cold storage is also an emerging and fast-growing segment in the industrial sector, whilst cold warehousing is still at an early stage of institutionalization. The location of cold storage warehouses is more important than for “dry” warehouses. LaSalle favors well-located cold storage warehouses for higher return strategies, but only when investors have a well-defined exit plan and experienced asset management capability to assist in the execution of asset-level business plans.
Office: While pricing and capital market demand for major Asia Pacific office markets are near peak levels, office occupier markets in Asia Pacific are at different stages of the occupier market cycle. Technology companies and co-working operators are boosting demand and reducing vacancy rates in major Asia Pacific office markets (e.g., Sydney, Shanghai, and Tokyo). The inflexibility of the traditional office leasing model sometimes does not align with the dynamic growth that many different firms — both large and small — are expecting, and LaSalle sees the co-working model likely to become a permanent option in major office markets across Asia Pacific. However, the performance of co-working operators has not been tested in a downturn. LaSalle recommends limiting the proportion of co-working and technology tenants to be a minority of an office portfolio (with variations at the asset level), and to focus on tenant credit and covenants for the majority of a property portfolio.
Retail: Investor sentiment for the retail sector is generally weaker than that of the industrial and office sectors. Domestic retail demand is expected to be more resilient in the region, while the tourist trade could be more volatile, although it remains a fast-growing segment in many gateway cities. E-commerce is contributing to the divergence between dominant, better-located and better-configured retail centers and inferior locations and outdated centers. However, in select markets, retail centers are also benefiting from online retailers who are extending their fast-growing on-line distribution channels to include brick-and-mortar stores. LaSalle is highly selective in the retail sector, with a tilt towards non-discretionary retail centers with a high tenant mix in grocery, pharmacy, food and beverage, and services located in strong residential catchment areas, particularly in Japan, Singapore, Hong Kong, and Tier 1 cities in China for core or value-add to core strategies.
Residential: Record or cyclically high residential prices in the region and the changing lifestyles of young households are driving the regeneration of multifamily markets, particularly in urban neighborhoods. For core investors, LaSalle favors urban rental apartments in Japan with excellent access to workplaces and amenities.
The for-sale residential market in Australia is particularly at risk with early signs of home price softening. Household debt in Australia is one of the highest in the region. When coupled with rising borrowing costs and tighter bank lending, home prices could correct further, particularly in the condo segment where supply is still at a record high. In Hong Kong, home prices have tripled since December 2008. LaSalle expects residential prices in Hong Kong to adjust moderately in the near term, but much less severe than the correction in 1997-98. For investors who can tolerate higher risk, LaSalle recommends monitoring the for-sale residential sectors in Australia for potential entry opportunities, if residential and land prices are adjusted.
Hotel: Asian tourists, particularly the Chinese, are the key demand drivers of Asia Pacific hotels — particularly in Australia, Hong Kong, Japan, South Korea and Singapore. Depreciation of the Chinese yuan is unlikely to deter Chinese outbound travel to other major Asia Pacific tourist destinations. Investors with high risk tolerance could target hotel refurbishment opportunities near major tourist attractions, focusing on location selection and identifying the hotel segment that has a mismatch of demand and supply.
About LaSalle Investment Management
LaSalle Investment Management is one of the world’s leading real estate investment managers. On a global basis, we manage approximately $77 billion of assets in private equity, debt and public real estate investments as of Q4 2021. The firm sponsors a complete range of investment vehicles including open- and closed-end funds, separate accounts and indirect investments. Our diverse client base includes public and private pension funds, insurance companies, governments, corporations, endowments and private individuals from across the globe. For more information please visit www.lasalle.com and LinkedIn.
NOTE: This information discussed above is based on the market analysis and expectations of LaSalle and should not be relied upon by the reader as research or investment advice regarding LaSalle funds or any issuer or security in particular. The information presented herein is for illustrative and educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy in any jurisdiction where prohibited by law or where contrary to local law or regulation. Any such offer to invest, if made, will only be made to certain qualified investors by means of a private placement memorandum or applicable offering document and in accordance with applicable laws and regulations. Past performance is not indicative of future results, nor should any statements herein be construed as a prediction or guarantee of future results.
