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Cushman & Wakefield’s 2022-2023 Asia REIT Market Insight report investigates the growing Real Estate Investment Trust market in Asia, examining the primary drivers and state of play in key markets including Japan, Singapore, Hong Kong SAR, mainland China and India.
Overall, the Asia REIT market has experienced declines in stock prices and overall market values in 2022, predominantly due to the influence of the U.S. interest rate hikes. Despite this, the Asia REIT market has still performed better than its U.S. and European counterparts.
Key highlights:
China's first REITs were launched in 2021, following earlier exploration of real estate securitization. As of March 2023, 27 REITs have been listed in China, covering various real estate infrastructure types. The sector is transitioning from volatility to a more stable market, and opportunities for private real estate investment funds in China are expanding.
Looking ahead, Chinese REITs are expected to diversify their assets, improve valuation techniques, enhance management structures, and optimize leverage restrictions. China aims to build a REITs ecosystem based on international standards, with collaboration between local and international stakeholders playing a crucial role in its development.
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The last decade was marked by an aggressive expansion of the region’s real estate markets. APREA’s Asia Pacific Market Outlook 2023: Onward and Upward held a session with REIT stakeholders on their business strategies around Covid, e-commerce, changing monetary policies, geopolitics, and new priorities (ESG) and the next set of challenges and opportunities.
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In the last five years, Asia’s share of the FTSE EPRA/Nareit Developed Index, the most widely followed real estate index globally, has declined from 25.0% in 2017 to 21.0% at the end of 2022. This movement can be largely attributed to the growth of U.S. REITs, shifting the balance of power within the listed universe further to North America, whose share of the index rose from 57.1% in 2017 to 64.0% in 2022.
The growth in the U.S. REIT universe has been driven by the emergence of a wide range of alternative real estate sectors that have arisen from structural shifts in the economy and strong demand from equity investors. The share of these alternatives in the U.S. portion of FTSE EPRA/Nareit Developed Index rose from 34.0% in 2007, to 47.5% in 2017 and 55.0% in 2022.
Growth in the U.S. listed REIT universe has been so prominent, that index constructors such as FTSE introduced capped indices, limiting the size of the U.S. component to avoid global indices being increasingly seen as ‘US & others’ and diminishing their usefulness to investors.
One might ask: Why has Asia been unable to keep pace with the growth in U.S. alternative REITs? In fact, Asia’s alternative REIT universe has grown even faster than in the U.S.. While Asia’s weight in the global REIT index fell – from 27.1% in 2017 to 21.0% in 2022, the weight of Asian alternative REITs increased from 2.3% of the global index to 3.8%, respectively. Looking only at the Asian REIT universe, alternative REITs grew their weight by an impressive 114.7%, from 8.5% in 2017 to 18.2% 2022.
This paper, written by Joachim Kehr, Head of Asia-Pacific and a Senior Partner at CenterSquare Investment Management, investigates the sectors behind the expansion of alternative REITs in the U.S. and Asia over time and explores which sectors offer the biggest growth potential for Asian alternative REITs, proposing additional steps to sustain this growth going forward.
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