Real estate outlook 2022: Investment volumes into realty to match those of 2021

Residential and industrial and warehousing sectors have emerged as major beneficiaries this year, garnering a combined 36% of the investments

File photo
File photo

Investors are positive on property market fundamentals, supporting high real estate allocations across the Asia Pacific, Americas, Europe, the Middle East, and Africa (EMEA). This demonstrates the continued allure of the asset class, enabling 2022 investment volumes to at least match those of 2021. There has been a rapid acceleration in the number of transactions closing in third quarter, which is expected to continue well into 2022, a new report by Colliers has said.

Investments in the Indian real estate sector have remained resilient despite the headwinds triggered by the pandemic, adversely impacting the economy and business climate. For the nine months ended September 2021, investments were recorded to the tune of $3.5 billion, almost 75% of the quantum seen in 2020, it said.

Residential and industrial and warehousing sectors have emerged as major beneficiaries this year, garnering a combined 36% of the investments.

Core and core-plus office spaces are the top global strategy picks, with 60% of investors stating these assets as their investment preference, while industrial and logistics (I&L) assets will be the most coveted, it said.

Their appeal not only stems from the realisation that office demand is here to stay, particularly in cities supported by strong transport infrastructure and high amenity values, but also the ease of large-scale capital deployment that office assets represent

The rising cost of construction, viewed by four in five (81%) investors as a pain point, could limit new builds, renovations, and retrofit projects, amplifying the demand for existing quality office assets, it noted.

“While the office will continue to remain a dominant sector, investments in residential and industrial and warehousing are likely to strengthen in 2022 aided by strong business fundamentals. Income visibility and stability, attractive valuations and identifying the dark horses will underline the investment ethos in 2022”, said Ramesh Nair, CEO, India, and Managing Director, Market Development, Asia, Colliers.

Across Asia Pacific (APAC), more investors are prepared to put into action their ambitious plans that have been delayed by COVID-19. Cross-border capital flows are also likely to return, as travel and business activity progressively returns.

“The pandemic has accelerated a number of structural trends and will have lasting changes on the nature of real estate business in India. This presents several opportunities for investors looking to future-proof their portfolios or recalibrates their strategy towards growth sectors. This is already evident in the rapid investment being allocated towards the residential, increasing development of data centres, Industrial, Office as well as the evolution of the life science sector,” said Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers India.

Overall, industrial and logistic assets will be the most sought-after real estate assets in the region, with more than 20% of investors anticipating capital value gains of 10%-20% in value-add I&L assets in 2022, supported by tailwinds and large-scale economic transformation.

Significant interest continues to surround core-plus offices, which remain a popular asset class for regional investors in Tier 1 cities like Singapore, Sydney, and Tokyo. 63% of the respondents indicated that they plan to invest in these assets, versus 54% last year.

Multifamily/built-to-rent (BTR) properties are also an increasingly sought-after asset class, with investors targeting both core and development projects. In Japan, this is a sector that is well established and has long attracted foreign core capital, whereas in Australia, it is an emerging asset class with development opportunities.

Investors see significant potential for the appreciation and repurposing of retail assets. Around a third of the investors mulling retail allocations are targeting opportunistic (including change of use) investments. In addition, hotels are also an opportunistic target, with 38% of investors looking at this sector

Specialised assets, particularly data centres, life sciences, and healthcare, are expected to help boost investment volumes in 2022, with student housing also poised for a comeback as Australia, the region’s main market, opens up to international visitors, the report said.

The report also shows ESG (environmental, social, governance) considerations remain prominent, with nearly three in four investors surveyed globally integrating environmental factors into their strategies. This desire to invest with intent is both a means of future-proofing their assets and responding to the stakeholder and societal pressures requiring them to respond to the climate crisis