M&A activity is growing across Asia Pacific’s real estate market, a sign that institutional investors are continuing to increase their allocations to the industry.
Singapore’s CapitaLand recently agreed to buy a controlling stake in developer Ascendas-Singbridge in a deal which would value the target company at S$11 billion (US$8.13 billion).
Last August, private equity firm Actis acquired Standard Chartered’s principal finance real estate business in Asia.
“Many investors around the world are still under-allocated to real estate generally and Asia -Pacific real estate in particular,” says Martijn van Eldik, Head of Funds Advisory – Asia Pacific with JLL. “With all that capital searching for a home in the region’s markets, firms will continue to assemble managers and operating companies as they try to build products that appeal to investors.”
M&A is not necessarily a shortcut to success though, he cautions.
“Any acquisition should be complementary to the existing business, making sure it can be integrated effectively and add real value,” says van Eldik. “Managers need to listen carefully to investors, to ensure the product they create or enhance is in line with and supports the demand.”
Here’s a rundown of what’s hot, and what’s not, in the region at the start of the year.
Logistics is seeing significant M&A activity, as a number of managers strive to become market leaders by building greater scale to support the sector’s expansion.
“Given the growing e-commerce trend and attractive yields, a lot of investors are asking for product in Asia-Pacific’s logistics space,” says van Eldik. “The region’s developed markets, along with China and increasingly India, are particular targets, given the size and profile of their e-commerce sectors.”
In response, several managers in Asia – such as GLP, Prologis and pan-Asian logistics developer and operator ESR, which was formed from the merger of e-Shang and Redwood in 2016 – have been active in M&A to position themselves as regional logistics players.
“Logistics is a good example of a growing underlying real estate sector with limited consolidated, regional products, where you can generate a portfolio premium by assembling strategies to create a regional vehicle to offer clients,” says van Eldik.
The alternatives sector is another.
At this point in the market cycle, yields and prices in traditional real estate segments such as office and retail have lost some of their lustre. Investor demand is shifting instead toward less mainstream market segments that hold out the prospect of superior returns and long-term stability. Areas of interest include education, healthcare, data centres, co-working, and senior and student housing.
Asia-Pacific’s alternative real estate market is relatively immature and small compared to its European and U.S. counterparts. But attention and investment – especially in the region’s more developed markets – is growing fast. As a consequence, M&A activity is picking up as managers seek to build portfolios with the requisite scale.
Having expertise in-house is also a bonus as many of the alternative sectors require niche skills in comparison to the more traditional sectors, says van Eldik.
“The alternative sectors in Asia-Pacific are relatively small, so a lot of managers – and in particular the regional players with local market knowledge – are targeting acquisitions to expand their expertise and capabilities, and develop the portfolio scale they need to attract that capital.”
Growth in the multifamily sector in Asia-Pacific – most notably in Japan, and to a lesser extent China – is similarly fostering M&A activity.
“Some of the offshore operators will likely try to move into these markets – and some are already doing it – by acquiring smaller, local platforms, to get a footprint and access to expertise,” reckons van Eldik.