Investors are showing increasing interest in deploying capital into Asia Pacific real estate markets that boast high levels of liquidity, according to Hamish MacDonald, head and chief investment officer of APAC Real Estate at BlackRock. Among the property sectors set to benefit from economic tailwinds this year are accommodation, logistics, and alternative assets. “This year, we are focusing on markets in Asia Pacific where liquidity is abundant, including Australia, Japan, Singapore, and Auckland in New Zealand. This list also reflects the order of our priorities at BlackRock this year,” says MacDonald. He believes that investor sentiment will be more bullish this year compared to 2023 and 2022, with institutional investors initiating discussions about deploying and recycling capital in selective Asia Pacific real estate markets this year.
In Singapore, BlackRock has been targeting serviced apartment properties, partnering with YTL Corp to acquire Citadines Raffles Place for about $290 million last October. This came after it joined forces with Hong Kong-based accommodation operator Weave Living to buy Citadines Mount Sophia for $148 million in February 2024. The Weave Living-managed property reopened its doors this week as Weave Suites – Hillside, comprising 175 rooms. “Our recent acquisitions in Singapore reflect our belief that there is a shortage of new serviced apartment supply in the city-state, but the demand for this type of accommodation remains high,” says MacDonald. He adds that the focus will not be on building an aggregated portfolio, but instead on targeting specific deals. “We prefer existing properties that we can refurbish and reposition with a partner while adding new amenities to enhance its value,” he says.
Singapore continues to attract strong inflows of capital and high-skilled labor, which accompanies the country’s robust business growth, notes MacDonald. “We remain optimistic about opportunities in Singapore.” Meanwhile, Japan will remain a target for many real estate investors this year, adds MacDonald. “We are optimistic about the Japanese economy based on our analysis of local pricing power, wage growth, and corporate restructuring, which collectively support real estate growth.” A combination of factors, including wage increases and rising construction costs, have contributed to relatively strong rental increases in the Japanese residential market in recent quarters, notes Daigo Hirai, head of Japan real estate at BlackRock APAC.
“In general, we expect a 7% to 8% increase in residential rents in major Japanese cities such as Tokyo and Osaka this year. In addition, tenants have started to favor larger apartment units over compact ones like studios,” says Hirai. BlackRock intends to partner with an experienced accord operator to manage a hybrid residential investment strategy that will cater to both inbound tourist accommodation needs and domestic rental demand. This will enable BlackRock to deepen its investment presence in tourist-dominated cities like Kyoto and Fukuoka. “The types of assets that fit this strategy are those near train stations in residential-commercial areas such as Osaka’s Namba district, as well as smaller developments with up to 50 units,” says Hirai, adding that the firm would consider buying prices ranging from JPY1 billion to JPY3 billion to accommodate its exit strategy.
“The key to working in Japan for us is to deploy specialized ground teams that can identify potential acquisition opportunities at a significant discount,” says MacDonald, adding that the firm’s primary focus in Japan is residential assets. Meanwhile, long-term population growth forecasts continue to support positive long-term growth across most sectors of the Australian real estate market, notes Ben Hickey, Head of Australia Real Estate at BlackRock. “Most property sectors in Australia are also typically characterized by undersupply and low vacancy rates.” Any investment strategy in Australia should assess whether rental growth can outpace inflation, the ongoing long-term supply-demand imbalance, and a favorable exit strategy, says Hickey. This has led the firm to concentrate on niche asset classes in Australia, such as childcare facilities, last-mile logistics assets, life science real estate, and self-storage properties. These four asset types benefit from Australia’s long-term population growth and are “chronically undersupplied” concerning local supply and the wider regional markets, adds Hickey. “This allows us to generate outsized returns with limited risk; we cannot rely on a favorable interest rate outlook to generate our real estate returns.”