Despite an uncertain economic backdrop, the fundamentals of real estate markets across Asia remained for the most part uncompromisingly strong throughout 2013, with cap rates tightly compressed and transaction volumes rising going into the fourth quarter of the year. This resilience came as a surprise to many investors interviewed for this year’s Emerging Trends in Real Estate Asia Pacific report, given the specter of higher interest rates hanging over the market as the U.S. Federal Reserve considers when to begin tapering its longstanding policy of monetary easing.
In 2014, the problem going forward will be not only fierce competition for most conventional asset types, but that historically low yields are more likely to go down than up once base rates begin to tick up. As a result, investors will move up the risk curve in 2014 as they seek out yield, looking for value in niche areas instead of the mainstream. In particular, this might mean buying smaller-sized, or B-grade, buildings, or those in secondary markets. It might also mean buying or developing assets in the logistics, senior care, or self-storage sectors, or as a green-building play. Investors are also more likely to consider taking development risk. Large institutional players, for example, are now breaking with tradition by partnering with big developers in China to build core assets.