Sustainability issues, particularly social and environmental issues, are clear priorities that will be increasingly woven into long-term investment strategies and performance targets for global real estate investors in 2022.
Asia is lagging, however, with many investors in some key markets in the region still of the mindset that sustainability is not yet a priority, although this is changing in the face of strong pressure for them to follow the growing trend.
These are the views of asset managers specializing in real estate investment based on separate surveys regarding their 2022 market outlook.
“We expect environmental attributes and asset performance to drive market turnover as investors recalibrate their assets under management,” says Damian Harrington, director and head of research, global capital markets & EMEA, for Colliers, citing the Colliers Global Capital Markets 2022 Investor Outlook report.
“Three quarters of investors surveyed globally are taking action, with at least 25% in advanced planning stages on whether to hold or dispose of assets. Social trends point to affordable housing as a significant growth opportunity globally when expertly managed.”
Colliers’ findings are similar to those of Savills Research, which conducted its own survey of research heads across 36 cities globally regarding their 2022 outlook for investing, leasing and environmental, social and governance (ESG) trends.
“About 75% of Savills research heads indicated that sustainability is an important consideration for investors. But cities in Asia-Pacific dominate those where it is not yet deemed important, such as Hong Kong, Tokyo, Jakarta and Seoul,” says Paul Tostevin, director at Savills World Research.
But given the significance of the ESG agenda, it is unlikely to be long before investors in Asia-Pacific who still don’t think sustainability is important changes their mindset, Tostevin says.
“Company reputation is the strongest motivation behind sustainable investment, cited by 54% of respondents as significant, while 46% indicated the opportunity to increase returns was also an important motivator,” Tostevin says.
Savills Research points to the resilience of real estate in an era of accelerated change and evolution, rather than revolution, amid the ongoing pandemic.
Office leasing should return to pre-pandemic levels by 2022, but there are variations. Emerging markets such as China, Indonesia and Vietnam are the most bullish on leasing activity. Tech occupiers are expected to lead demand across the board, with 79% of Savills researchers anticipating higher leasing activity in their markets than in 2019. Offices are expected to be the dominant asset class in the coming year. In Shenzhen, Beijing, Guangzhou and Seoul, 60% of all investment is expected to flow into this sector, according to Savills Research.
On the other hand, the rising cost of construction is the major global concern, cited by 80% of investors. That is ahead of city mobility and travel restrictions resulting from the Covid-19 pandemic, which are cited as a major negative factor by 60% of investors, according to Colliers.
Given the strong appetite for development, and the growing need to retrofit and repurpose existing stock, rising construction costs are clearly weighing heavily on investors’ minds. However, tightening supply conditions should reinforce existing values, particularly for core assets. Equally, existing bottlenecks should drive the acceleration of modern methods of construction as a means of bringing more sustainable, energy-efficient and emission-compliant products to the market, Colliers says.
Total real estate assets under management (AUM) stood at €3.3 trillion (US$3.73 trillion) at the end of 2020. The latest results highlight the strength of the asset class, which more than tripled in size over the last decade, according to data from INREV.