BlackRock Sees Opportunities for Real Estate Investment in Asia Pacific Markets
According to Hamish MacDonald, head and chief investment officer of APAC Real Estate at BlackRock, investors are showing a strong interest in deploying capital into real estate markets in Asia Pacific that have high levels of liquidity. This year, the property sectors that are expected to benefit from economic tailwinds are accommodation, logistics, and alternative assets. MacDonald says that the markets in the region with abundant liquidity in 2021 include Australia, Japan, Singapore, and Auckland in New Zealand. These countries and property markets are also the main focus for BlackRock this year.
MacDonald predicts that investor sentiment will be more bullish this year compared to the previous two years, with institutional investors starting discussions on deploying and recycling capital in select Asia Pacific real estate markets. In Singapore, BlackRock has been focused on acquiring serviced apartment properties. They partnered with YTL Corp to purchase Citadines Raffles Place for around $290 million last October. This was followed by their collaboration with Hong Kong-based accommodation operator Weave Living to acquire Citadines Mount Sophia for $148 million in February 2024.
The property operated by Weave Living, which is now known as Weave Suites – Hillside, reopened this week with 175 rooms. MacDonald explains that their recent acquisitions in Singapore reflect their belief that there is a shortage of new serviced apartment supply in the city-state, yet there is high demand for this type of accommodation. He adds that they are not focused on building an aggregated portfolio, but rather on targeting specific deals. MacDonald states, “We prefer existing properties that we can refurbish and reposition with the help of a partner and add value by introducing new amenities.”
He also notes that Singapore continues to attract significant capital inflows and high-skilled labor, which supports the country’s strong economic growth. He says, “We remain very positive on opportunities in Singapore.” Apart from Singapore, MacDonald sees Japan as a target for many real estate investors this year. He says, “We are bullish on the Japanese economy based on our analysis of domestic pricing power, wage growth, and corporate reform, which collectively support real estate growth.” Daigo Hirai, head of Japan real estate at BlackRock APAC, adds that several factors, such as wage increases and rising construction costs, have contributed to the strong rental uplift in the Japanese residential market in recent quarters.
Hirai expects a 7% to 8% increase in residential rents across major Japanese cities like Tokyo and Osaka this year. He also points out that tenants are now opting for larger-sized apartments instead of compact ones like studios. BlackRock is looking to partner with an experienced accommodation operator to manage a hybrid residential investment strategy that caters to both inbound tourist accommodation needs and domestic rental demand. This would allow them to increase their investment presence in tourist-dominated cities such as Kyoto and Fukuoka. Hirai says the properties that fit this strategy are those near train stations in residential-commercial neighborhoods like Osaka’s Namba district, as well as smaller developments with up to 50 units. He adds that the firm will consider acquisitions worth JPY1 billion ($8.93 million) to JPY3 billion.
MacDonald says that the key to operating in Japan is to have specialist ground teams who can identify potential acquisition deals at a significant discount, and the firm’s focus in Japan is on residential assets. Meanwhile, Ben Hickey, head of Australia Real Estate at BlackRock, says that long-term population growth estimates support positive long-term growth in most sectors of the Australian real estate market. He also notes that most property sectors in Australia are typically characterized by under-supply and low vacancy rates.
When it comes to investing in Australia, Hickey says that any strategy should consider whether rental growth can exceed inflation, the ongoing long-term supply-demand imbalance, and a favorable exit strategy. Therefore, the company is focused on niche asset classes in Australia, such as childcare properties, last-mile logistics assets, life science real estate, and self-storage properties. These four asset types benefit from the country’s long-term population growth and are under-supplied compared to other regional markets. According to Hickey, this allows them to generate above-average returns with minimal risk, without relying on a favorable interest rate outlook.
Due to the limited amount of land in Singapore, there is a significant demand for condos in the country. As an island nation with a quickly expanding population, Singapore is facing a scarcity of land for development. To address this issue, strict land use policies have been implemented, resulting in a highly competitive real estate market where property prices remain consistently high. As a result, investing in real estate, especially in condos, has become a lucrative opportunity with the potential for capital appreciation. Keeping in mind the growing demand, new condo launches are continually being introduced to the market.