Investors are increasingly turning to alternative real estate sectors to take advantage of their attractive yields and long-term growth prospects in Asia-Pacific, according to property consultancy firm JLL
While major traditional real estate assets include housing estates, condominiums, office buildings, retail centres, industrial/logistics properties and hotels, alternative sectors include non-traditional real estate assets such as aged care or nursing homes, student housing, education, data centres and laboratories, according to JLL's new report The Rise of Alternative Real Estate in Asia Pacific.
"Globally, Asia-Pacific's alternative real estate market is still relatively immature compared to Europe and the US but interest is growing as investors continue to seek out new sectors to diversify assets and enhance returns," says Rohit Hemnani, chief operating officer and head of alternatives, capital markets, JLL Asia Pacific.
"The way alternatives are structured presents a long-term operating lease, which provides a stable income stream and decreases market volatility," he adds.
JLL estimates yields on alternatives such as data centres to range from 4% to 6% in Tokyo and Singapore, and 6% to 7% for Sydney.
By contrast, those for core assets such as office buildings can generate around 2.5% in Tokyo and 4.5% in Sydney, while shopping malls can command approximately 5% in Australia and around 2.5% to 3% in Tokyo.
JLL also expects the outlook for alternatives in Asia-Pacific to be positive and continue to gain momentum due to broad demographic shifts such as urbanisation, an ageing population, as well as the region's rising household wealth and increasing use of technology.
"Asset classes like education and self-storage will stand to benefit from the growth of the urban population in Asia-Pacific, which will account for over 400 million people by 2027. International schools in Asia-Pacific are forecast to multiply by three to four times to meet a target of 10 million students over the next 15 years.
"This will boost the education and student accommodation sectors that are well-positioned to grow in Australia, China, India and Southeast Asia. Rapid adoption of smartphones, cloud computing and the Internet of Things will drive a surge in demand for data centres, bolstered by an additional 560 million internet users over the next decade in the region," he continues.
Meanwhile, the region's ageing population will rise by an additional 146 million people within the next 10 years, contributing to the expansion of senior housing and nursing homes, Mr Hemnani explains.
'Next big thing' in Thailand?
Observations by JLL in Thailand suggest that there are a number of alternative sectors that have strong demand drivers and growth potential.
Prime examples are senior housing and wellness centres that could cater to demand from not only Thais but also foreigners. With a rapid pace of growth and an endless demand for data storage, data centres are also becoming an attractive alternative real estate development option.
As Bangkok becomes increasingly urbanised and residential unit sizes continue to shrink the need for additional storage space is also likely to grow, opening up opportunities for self-storage development.
However, despite these strong demand drivers, a number of barriers to entry remain.
While different alternative sectors sit across different levels of maturity, the lack of know-how and experience to develop, operate, manage and market assets in a number of these sectors is one of the biggest challenges that Thai developers and investors have faced.
But no problem is without a solution when it comes to real estate. In sectors where no local expertise and experience exists, local developers or investors could seek partnership with international specialists that are looking for opportunities to diversify into new emerging markets such as Thailand.
