The Rise of Alternative Real Estate in Asia Pacific

The Fundamentals
2 The Rise of Alternative Real Estate in Asia Pacific

A brief introduction

Investors in the Asia Pacific While there may be some Despite the growing investor
region continue to seek cyclical trends to the demand across the region,
out new markets and new increased investor demand, there remains a large
sectors in order to obtain there are real longer-term disconnect between capital
asset diversification and secular and structural trends and expertise which has
enhanced risk adjusted at play in the background opened up an opportunity
returns. One of the key that are underpinning for first movers across a
means by which investors longer-term prospects for number of markets and
are going about this is a many alternative sectors. sectors.
rapid shift towards the
Alternatives sectors1.

“Investment in the Alternatives sectors in Asia Pacific provides more

direct access to the compelling demographics and demand drivers
associated with the Asian population, while enhancing returns and
diversification for investors.”
Rohit Hemnani
Head of Alternatives, Capital Markets, Asia Pacific, JLL

1. Alternatives sectors refer to non-core asset classes, including education, student housing, aged care, self storage, data centers and renewables.
3

What’s driving demand?

Almost all of the Alternatives sectors, including Below we have highlighted five key demand
data centers, self storage, aged care and so drivers of the Alternatives landscape and have
on find their primary demand drivers to be indicated the key sectors that correlate. These
associated with broad based trends such as demand drivers differ to traditional real estate
age demographics, urbanization, technological asset classes.
advancement or macro growth in consumer Most of the factors supporting the Alternatives
markets and household wealth. sub-sectors are broader, longer-term trends
Given the fast changing trends across most with much less volatility and uncertainty
of these demand drivers, the current supply/ surrounding the medium-to-long term outlook.
demand dynamics of most Alternatives asset By comparison, traditional asset class demand
classes are well out of sync and continue to play drivers like white collar employment (office) and
catch-up to the underlying market demand. retail turnover (retail) tend to be more volatile
with much less certainty around the outlook.

Age Urbanization Consumer Rising Wealth/ Technology

Demographics Markets Economic Development

Aged Care ✓ ✓ ✓

Student Housing ✓ ✓ ✓ ✓

Education ✓ ✓ ✓ ✓

Data Centers ✓ ✓ ✓ ✓

Self Storage ✓ ✓

Renewables ✓ ✓
4 The Rise of Alternative Real Estate in Asia Pacific

Asia Pacific in context

In an Asia Pacific context, these

broader macro drivers present
a very favourable outlook. The
demographics and general
urbanization trends tend to be
far more favourable from an
overall growth perspective.
Be it GDP, population or tertiary
enrolment, the growth rates
in Asia Pacific far exceed those
of Europe or the US. At the
broadest level, the Asia Pacific
region accounts for 18 of the
world’s 34 megacities2.
The core Asia Pacific region as
shown in the graphic accounts
for more than half the world’s
population, despite taking up
only a fraction of the global
landmass.
There are more people in this circle than outside of it.
18 of the world’s megacities are located here.
2. Megacities are cities with a population of over 10 million in the
metropolitan area.
5 The Rise of Alternative Real Estate in Asia Pacific

What’s driving growth?

500 Growth in Urban Population (2017-2027) Growth in internet users (2017-2027)
Growth in population aged 65+ (2017-2027)
600 160 60%

400 500 140

50%
120
400
40%
100
300

million

million
300
80 30%
million

200 60
200 20%
100 40
10%
20
100
Asia Pacific Rest of World 0 0%
Asia Pacific Europe Africa / ME Americas
Europe US/Canada Americas (excl. US/Canada)
0 Africa Asia Pacific Growth Growth %
Asia Pacific Americas Europe

Source: Oxford Economics Source: Oxford Economics Source: Oxford Economics

Furthermore, growth of the urban population in Another key trend is the improvements in Asia Pacific has a much younger average age
Asia Pacific is expected to exceed over 400 million technological advancement and the rapid compared to Europe and the US. However,
people over the next 10 years. By contrast, the adoption of smart phones, cloud computing and growth in the population aged 65 and above is
Americas (both North and South) are expected the internet of things. expected to increase significantly.
to see their urban populations increase by just The general growth of internet user rates in Over the next 10 years the population aged 65
over 100 million, with Europe’s urban population Asia Pacific is forecast to exceed 560 million and above is expected to increase by 146 million
growing by 21 million over the same time additional users over the next 10 years. To put - equivalent to 40,000 people per day. The growth
horizon. In fact, Asia Pacific’s urban population this into perspective, there will be over 150,000 in Asia Pacific will account for more than the rest
growth over the next decade is larger than the new internet users per day, or more than 100 of the world combined.
entire current population of the Eurozone or the new users per minute, every minute for the next
United States. This will have a lasting impact on decade.
the general real estate markets, but particularly
in regards to the Alternatives sectors such as self
storage, data centers and education.
6 The Rise of Alternative Real Estate in Asia Pacific

Why Alternatives?

The case for investment into the Alternatives 9%

Tokyo Sector Cap Rates 7% Sydney Sector Cap Rates

sectors continues to improve. The demand 8% 6%

equation is highly supportive of required 7%

5%
investment over the long-term. Moreover, the 6%

5% 4%
Alternatives sectors offer a new investment

%
%
4% 3%
thesis that compliments more traditional sector
3%
investment. 2%
2%

1%
The structure of Alternatives real estate is such 1%

that often the operating lease is very long term, 0%

Office Retail Logistics Data Student Aged
0%
Office Retail Logistics Data Student Aged
Centers Housing Care Centers Housing Care
such as in schools, aged care homes, data centers
and self-storage facilities – often in excess of 20
years. This provides a very stable income stream
at the propco level and adds diversification to
income from a new style of tenant or exposure remain rare. Over time propco cap rate spreads Organizations have adopted an integrated
to a new economic sector. Relative to traditional to traditional asset classes will compress as approach to scale and improve efficiencies in
real estate, the Alternatives demand drivers markets mature and price discovery/transparency emerging markets. Investment purely on the
are much less prone to market cycles. This improve. operating side of the equation tends to be highly
improves income stability over the long-run and The Alternatives sectors tend to be operationally specialized and offers superior returns relative to
compliments investors’ ability to generate better intensive. An integrated propco/opco investment investment at propco level.
risk adjusted returns. strategy, where a position is taken in both
Finally, the Alternatives sectors offer a strong property assets and the operating business is
return premium to traditional real estate. At the therefore quite common. This is often born out of
propco level, yields sit at a healthy premium necessity in new sectors where there has been a
to traditional asset classes, although stablized lack of investors and operators with a long track
investment opportunities at the propco only level record.
7 The Rise of Alternative Real Estate in Asia Pacific

Illustrative Risk/ Return

Spectrum in the Education
Sector in Asia Pacific

Source: JLL 25-35%+

Opco
Equity investment

15-25%
Propco/Opco
Return Legacy ownership
Market specific
requirement

10-15%
Propco
Sale-leaseback
Build-to-suit

Risk (Specialization)
8 The Rise of Alternative Real Estate in Asia Pacific

What to consider before you invest?

Despite the strong investment case behind Introduction Developing Growth Matured
Alternatives, there remain a number of barriers to
entry or hurdles to investment. Some sectors are
highly regulated by governments
(e.g. aged care and data centers) in certain
markets. Furthermore, the sectors and markets AS
sit across a wide spectrum of maturity in Asia
H
Pacific, so understanding market fundamentals
and operational capabilities can be challenging. A
The lack of institutional grade product also J
JS
means market entry is often achieved via
development, and operational capabilities need
to be acquired or grown organically. C
Despite the challenges ahead, there is C
tremendous opportunity for investment in C
Alternatives and to develop platforms in Asia
Pacific, given the demand and demographics in
this region.
I
I
Aged Care Education Student Housing Data Centers Traditional Sectors

A Australia C China H Hong Kong I India J Japan S Singapore

9 The Rise of Alternative Real Estate in Asia Pacific

What are the opportunities?

Education Student Housing Self Storage

• International schools in Asia Pacific are • India has 34 million college students, a third of • Growth in the urban population, ageing
forecast to grow by 3-4 times over the next 15 whom are studying outside their home state. population, and internet users over next 10
years to 15,000 schools, 10 million students, • Tokyo has 1.5 million tertiary students, but no years will be larger in Asia Pacific than rest of
and $113 billion in annual tuition fees. global standard student housing facilities. In world combined.
• IRRs in the Education sector in Asia Pacific contrast, London has a quarter of the number • Japan, Hong Kong and China are the top 3
range from 10-15% at propco level to 35%+ at of students and a significant amount of high most attractive destinations in Asia Pacific for
opco level. specification student housing facilities. self storage.
• Asia Pacific is experiencing a shift in demand • In most Australian cities, there is less than one
from expatriates to local clientele seeking purpose built student accommodation (PBSA)
quality English-medium education at mid- bed for every 10 students.
market pricing..
10

Our top picks for

What are the opportunities? Alternatives in Asia Pacific
There is tremendous opportunity for investment
and to develop platforms in Asia Pacific, given the
demand and demographics in this region. The
graphic below shows the sectors we believe are
most promising for investment in key Asian markets,
taking into account a variety of factors including

Aged Care Data Centers demand, infrastructure, regulatory environment, etc.

Australia

• The global population aged 65 and above • Investment in data centers opco/ propco yields China
will rise from 962 million in 2017 to 2.1 billion 15-25% levered returns.
by 2050. Asia Pacific represents 62% of this • China’s cloud computing market is forecast to Hong Kong
growth. grow from $1.5 billion in 2013 to $20 billion by
• 53% of the working population in Japan will be 2020 (CAGR: 40%). India
aged 65 and above by 2030. • Singapore and Sydney’s colocation market
market is projected to grow at a CAGR of Japan
12-15% over the next 5 years.

Singapore

Data Centers Student Housing Education

Aged Care Self Storage Renewables

11

Achieving your ambitions with Alternatives

Investors want to diversify their portfolios. They want

access to Alternatives products where demand outstrips
supply, and to the operational expertise these assets
require.
Operators want scale and operational efficiency. They need
access to capital and development expertise to enter new
markets and navigate the regulatory environment.
We combine access to capital, financial and operational
expertise and real estate insights to build the strategic
partnerships that will help you achieve your ambitions.
We provide:
• Research and advisory
• Joint Venture partner mapping and selection
• Capital raising
• Acquisition and Divestments
• Due Diligence services
• Build-to-Suit structuring
12 The Rise of Alternative Real Estate in Asia Pacific

Asia Pacific Alternatives Investment Team

Rohit Hemnani Steven Xing Pelham Higgins

Asia Pacific - Head Greater China - Head Japan & South Korea - Head
+65 6494 3875 +86 21 6133 5460 +81 3 5501 9377
[email protected] [email protected] [email protected]

Noeleen Goh Raymond Fung Noral Wild

+65 6418 8619 +852 2846 5181 Australia - Head
[email protected] [email protected] +612 9672 6522
[email protected]

Bob Tan Vijay Rajagopalan Jordan Berryman

+65 6494 3879 India - Head +612 9220 8566
[email protected] +91 9819605114 [email protected]
[email protected]

Paul Dwyer Mahesh Khalap Nicholas Wilson

+852 2846 5920 +91 2271 495745 Asia Pacific - Capital Markets Research
[email protected] [email protected] +65 6394 7810
[email protected]

Shashank Narayan
+852 2116 8385
[email protected]

jll.com
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