PODCAST: How COVID-19 is forcing investors to reposition portfolios

As markets show the first signs of awakening, real estate investors are repositioning their strategies to suit a vastly changed world.

Commercial real estate’s record-setting investment run in Asia Pacific – a decade-long bull market that saw allocations and deal volumes rise sharply amid a hunt for yield – came to an end as the pandemic took hold at the start of this year. Investment volumes fell 26 percent in the first quarter of 2020 compared to the period last year, according to JLL data.

But as the end of the second quarter approaches, economies in the region have started to reopen. And with roughly $40 billion of dry powder capital dedicated to the region, a large appetite for deals remains.

In the current environment of ultra-low global interest rates, negative bond yields, volatile equity markets, real estate looks set to at benefit as more people look for income producing assets and the relative stability of the asset class, says Tim Graham, Head of Capital Strategies in the region at JLL.

“The way investors are approaching the markets has changed substantially given the wide-ranging impacts of COVID-19,” he says. “Conversations have shifted away from assessing the initial impact of COVID-19’s impact on portfolios, towards a more forward-looking approach to sourcing fresh opportunities and new deals. Recent discussions with investors have underlined the importance of geographic and sector diversification.”

Trends that were gaining momentum across the region pre COVID-19, including digital transformation, e-commerce, and widespread flexible working policies, have been accelerated. As a result, there is a sharper focus on the real estate that supports them, including sectors such as logistics and data centres.

Over the past three months, approximately US$6 billion in capital has been committed to logistics and data centre strategies, according to JLL data, and more deployment is expected as investors look to diversification for risk mitigation purposes.

Urbanisation, rapid population growth, and a rising middle class have all contributed to a boom in demand for real estate across the region, including more traditional real estate investments like offices, the need for which has been challenged by large technology firms and banks as staff successful login to work from home.