Australia
China
India
Indonesia
Japan
Malaysia
Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam
Over the past decade, Asia has emerged as a significant contributor to the growth of global real estate investment trusts (REITs). Despite having navigated the uncertainties of Covid-19, volatile stock markets, and overall muted sentiments, the Asia REIT market managed to outperform the US and European markets in 2022-23, according to Cushman and Wakefield.
Japan, Singapore, and Hong Kong are key players in the Asia REIT market. But China is catching up. In 2022, China’s REIT market value experienced an 80% surge, even as Asia’s overall REIT market faced a 14.7% year-on-year decline, bringing its total value to $263.8 bn.
Additionally, Cushman and Wakefield have identified industrial/logistics, healthcare, and data centre assets as the emerging catalysts for REIT investments in Asia over the past few years.
Japan and Singapore are the most promising REIT destinations
Japanese REITs are increasingly attracting investor attention, driven by the depreciation of the yen against the dollar and the growth in the number of foreign tourists visiting the country.
In the first nine month of 2023, the Tokyo Stock Exchange REIT Index posted a return of 3.3%, outperforming the US (1.9%), Australia (1.8%), the UK (-5.4%), Singapore (1.3%), and Hong Kong (-26.7%).
Also, Japan’s office vacancy rate is lower than that of other countries, helping to sustain a robust demand. The country’s hotel sector REITs are also witnessing increasing interest, fueled by expectations of a rebound in Japanese tourism.
Meanwhile, with 42 REITs and property trusts, Singapore REITs or S-REITs market has a combined market capitalisation of S$101 bn ($73.86 bn). In 2022, the Singapore REITs posted a 10.7% decline despite a robust residential property landscape. Among them, the country’s REIT counters primarily in hospitality and industrials, delivered positive returns.
This year, Singapore REITs posted a 2.5 % fall in returns in August. The August returns bring the year-to-date total returns of S-REITS to 1.3%. According to SGX, retail investors net bought $187.7 mn of S-REITs, while institutional investors net sold $94.3 mn last month.
Furthermore, analysts believe that dividend income for S-REIT investors looks stable. “Most rated Singapore REITs are resilient to a global economic slowdown in 2023 due to healthy leverage, limited exposure to rising interest rates and utility costs, and robust financing flexibility,” says Fitch Ratings.
Although Japan, Singapore, and Hong Kong currently dominate with over 80% of the market share in the Asian REIT space, mainland China’s REIT market is rapidly gaining ground. According to Cushman and Wakefield, China has made a swift ascent to become the fourth-largest Asian REIT market in 2022, up from its seventh-place position in 2021.
This is primarily due to new real-estate assets across categories, especially commercial assets. “We can expect the C-REIT market to diversify and further prosper, in turn helping to stimulate consumption and drive domestic demand,” says Andrew Chan, Managing Director, Head of Valuation and Advisory Services at Cushman and Wakefield.
Ironically, the Hong Kong REITs market bore the brunt of having China-exposed assets last year. At the end of 2022, the S&P’s REIT index for Hong Kong declined 26%, compared to an increase of 9%, 5%, and 4% in Australia, the US and Japan, respectively.
Moreover, vacancies in Hong Kong’s central business district climbed to 10.1%, clocking double digits for the first time. The decline in the REIT index and high vacancy rates pose a threat to the profitability of REIT properties in Hong Kong.
Higher interest rates are also playing an important role in the declining Hong Kong REIT market. As these vehicles rely majorly on leverage, high borrowing costs exert downside pressure. Moreover, the lacklustre performance of Hong Kong’s largest REIT Link has also dampened investor sentiment.
Outlook for Asia REITs market
Experts have a positive outlook towards REITs despite the weakness in the macro environment. Jade Fu, Portfolio Manager, Investment Solutions at UBS Asset Management, says, “…we still think the Asian real estate market is in a relatively good position to handle the volatility in the medium term. Leasing momentum is expected to remain resilient as economies recover from the pandemic.”
Besides, Winston Lum, Senior Portfolio Manager at Nikko Asset Management, highlights that Asia ex-Japan REITs are among the asset classes experiencing rapid growth, making them particularly appealing when considering their valuation and dividend yield factors.
“Asia ex-Japan REITs could be an avenue to a raft of opportunities that have arisen in the region on the back of rapid urbanisation, a growing middle-class consumption, and a rebound in tourism,” opines Lum.
