Investment in a Minute - Unveiling the potential of Pan-Asian living strategies: A path to sustainable urban development

The Asia Pacific region is at a critical juncture in its urban development journey. Despite cities across the region housing over half of the world’s urban population¹, institutional investment in residential assets remains the lowest globally. This presents a significant opportunity to accelerate investment in the Asia Pacific living sector potentially through a tailored pan-Asian strategy that aims to meet specific market demands and maturity levels while capturing scale and diversification benefits, in our view. 

The diverse landscape of Asian markets

Asia’s real estate landscape, marked by its kaleidoscope variety of economies at varying developmental stages, presents both challenges and opportunities. Mature markets like Japan offer stability and proven frameworks for investment, while emerging economies such as Indonesia promises high-growth potential at greater risks. 

The living sector across the region, from Japan’s substantial multifamily market to Australia’s burgeoning purpose built student accommodation (PBSA) sector, showcases the vast potential for targeted development and investment.

We believe market fragmentation and immaturity could be reasons why Asia Pacific living assets have remained at just 7% of portfolios for the last 15 years, a trend poised for change in the coming decade, due to ongoing urbanisation, government policy adjustments facilitating private rental developments and growing institutional interest.

Drawing parallels and learning from Europe

There are numerous similarities between Europe and the Asia Pacific region. In Europe, the market landscape is also fragmented and diverse. For instance, the multi-family markets in countries such as Germany, Netherlands and Nordic markets are relatively mature, whereas markets in Spain, Italy and Ireland, although smaller, are experiencing robust growth. The last five years alone we have seen over ten new pan-European living strategies launched, raising close to EUR 10 billion for investment into residential, student housing and senior living assets. This surge in investment has significantly accelerated the living sector’s share within European real estate portfolios. 

Learning from Europe’s diverse market strategies and their significant institutional growth, Asia Pacific can leverage these insights to develop a robust pan-Asian living strategy that can optimise diversification, scale, and risk-adjusted returns.

With deep local knowledge of living sectors in UK, Europe and Asia Pacific, we see many pockets of potential growth in Asia Pacific with parallels in Europe. 

Parallel 1: PBSA in the UK and Australia

The UK and Australian markets both rank top five globally for international tertiary students. Both PBSA markets are dynamic, driven by significant increase in tertiary education enrolment and international student population. The UK’s advanced PBSA sector with provision rate of bed to student at 25%, compared to Australia’s emerging one with provision rate of 6.6%², reflects different stages of market maturity, but underscores a common trend: the growing demand for student accommodation. 

This sector’s expansion, especially in Australia, where stock has grown 50% in recent years, highlights the potential for targeted investment.

Parallel 2: Multi-family in Germany and Japan

Germany and Japan, representing mature multifamily investment markets in Europe and APAC respectively, share several characteristics, including robust rental sectors and significant regulations. 

Both Germany and Japan have ageing populations, though many major cities are still growing. In Germany, recent policies recruiting skilled foreign workers to stimulate the economy, have seen positive implications for the rental market. Likewise, the Japanese government is proactively adjusting immigration policies to reinvigorate its cities and spur economic activity, which is expected to boost population growth in core cities such as Tokyo, Osaka and Fukuoka and expand the pool of multifamily renters. As inflation and wages are growing for the first time in thirty years in Japan, investors may become more optimistic about residential rents in the country. 

Parallel 3: Co-living in Spain and Singapore

The co-living sector’s growth in Spain and Singapore, despite high ownership rates, reflects a shift towards flexible, community-oriented living solutions. This trend, coupled with rising rental and immigration rates, underscores the changing preferences among young professionals and the potential for co-living development in Asia. 

Singapore’s recent policy shift towards facilitating rental housing may indicative of emerging opportunities for investors in Asia’s living sector.

Parallel 4: Senior living in France and South Korea

France and South Korea exemplify the varying maturity levels of the senior living market. France’s established senior housing market, with a significant portion run by non-profit operators, contrasts with South Korea’s emerging senior living options, spurred by changing family structures and a declining birth date. This highlights the critical need for adaptable housing solutions that can cater to the aging population’s evolving needs. 

This demand for senior living solution will only grow, and it indicates a significant investment opportunity for investors in our opinion.

The call to invest in Asia Pacific living

Investing in residential property within Asia Pacific can offer the potential for diversification and enhanced risk-adjusted returns, particularly in light of the sector’s defensive nature and historical performance during economic downturns. As rental residential markets across the Asia Pacific mature, the opportunity for investors to capitalise on low volatility and value appreciation can be significant, potentially accounting for an increased share of total investment volumes over the next decade. 

¹ Source: United Nations World Urbanisation Prospects, as at February 2023.
² Source: HESA, Australian Government-Department of Education, CBRE, as at March 2024.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. The views expressed in this document should not be taken as a recommendation, advice or forecast. Past performance is not a guide to future performance.