Following the destabilising events of 2020, which trends will continue apace even after the virus is brought under control?

2021 Is expected to be a year of recovery for commercial real estate (CRE) in Asia Pacific, with economies reopening, investment resuming and the return of cross-border transactions. Of course, it will be a very mixed picture with some CRE sectors, including hospitality and retail, in a distressed state, while others have much brighter prospects. And the geographical prospects are also varied: China is the standout country that has emerged from the pandemic relatively unscathed, with Singapore and Hong Kong also looking more stable.

Below are three trends likely to drive CRE investment in the 12 months ahead.

1. Logistics

It’s become commonplace to say that Covid-19 accelerated trends that already existed before the pandemic – the most obvious example was online shopping. The logistics sector was already a favourite asset class before 2020 because of the huge demand for warehousing and distribution centres driven by growth in ecommerce. And it has been boosted further as consumers turned to online shopping during lockdowns.

“Logistics has become an overwhelming investor favourite thanks to its status as the only major asset class whose fundamentals have improved as a result of the pandemic,” says PwC in its report Emerging Trends in Real Estate Asia Pacific 2021. “Regional logistics transaction volumes in the first nine months of 2020 were up 15% year-on-year, according to Real-estate Capital Analytics, compared with declines of 53% in the retail sector,” notes PwC.

“Moreover, in the first half of the year, investment funds raised almost US$7 billion in new capital for deployment in Asia Pacific logistics projects, more than half the total for all asset classes combined – a testament to enduring appetite for warehousing assets.” There is still an undersupply of logistics facilities in most major APAC markets, which means this trend has some way to run.

2. Flexspace

While the office market is facing a difficult 2021, with investment having fallen and downward pressure on rents, flexspace is forecast to be the outstanding performer in the sector. In Knight Frank’s 2021 trends outlook, Kevin Coppel, Managing Director, Asia-Pacific, says flexible working is one of the key trends that was accelerated during the pandemic, alongside online retail and more resilient supply chains. “We expect these trends to continue apace even after the virus is brought under control in most markets,” he says.

Although demand for co-working facilities fell in 2020 as millions opted to work from home, flexible workspace is expected to make a strong comeback in 2021, according to PwC: “The current lack of clarity among occupiers over a slew of issues, ranging from how socially distanced offices should be, to how often employees will work from home, to how staffing demands may change, amounts to a new driver for flexspace demand that will boost its prospects over at least the medium term.”

And Colliers International concurs: “Enterprise interest in flexible workspace will rise as firms seek shorter term commitments as a way to rationalise their operations. This presents a chance to attract such clients for the longer term,” says the company in its Asia Pacific The Future of the Office Space report. In some instances, companies will opt to rent their own dedicated serviced office space; in other cases, big office users may decide to sub-let part of their existing space, perhaps in partnership with flexible space operators.

3. Data centres

Also benefitting from the growth in online shopping as well as accelerated digital adoption in many other areas such as work, education and entertainment, data centres are expected to be top of investors’ shopping lists in 2021.

As JLL’s 2021 Outlook reports: “Data centres will remain one of the largest recipients of investor interest. Global mobile data traffic is growing at about 40% each year, driving considerable data centre growth. There will be more data created in the next three years than in the last 30 years.”

The report adds: “Government policies, local data storage requirements and power usage are some of the factors that are driving the location and construction decisions around the region.”

In fact, data centres top the ranking of favoured investments in PwC’s survey, and that firm comments: “Strong growth in Asia Pacific internet bandwidth capacity (currently 56% annually, according to data centre operator Equinix) is creating record flows into development projects, much of it bound for investment-grade assets such as hyperscale data centres.” The growth is particularly strong in China, and funds that were previously deterred from investing by the operationally intensive nature of the investment have come onboard.

Flexible workspace is the fastest-growing sector of the global workplace market. Make the most of this exciting investment opportunity by partnering with IWG today