Asia Pacific real estate investment volumes are expected to rebound in the first of half of 2021 as investors continue to weigh up current market uncertainties due to the COVID-19 pandemic, according to new research from JLL.

The challenges of COVID-19 are prompting Asia Pacific investors to focus on core geographies and further accelerate pre-pandemic trends, a new survey has found.

As part of its Reimagining Asia Pacific Investment Strategies report, JLL sought the view of 38 global investors collectively holding close to $2 trillion of assets under management.

About 84 per cent of respondents said they expected transaction volumes to recover by the second half of next year.

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JLL Reimagining Asia Pacific Investment Strategies – At a glance:

• Investors are planning to increase their exposure to logistics 81 per cent, multifamily 58 per cent, and alternatives 44 per cent between now and the end of 2021.
• 82 per cent of investors are planning to retain or increase their exposure to the core sectors, such as offices, by the end of 2021 with only 6 per cent expecting to reduce their exposure.
• While core sectors remain central to strategies, investors also plan to increase their activity in the core plus by 42 per cent and value add segments by 49 per cent in 2021, due to both the limited opportunity to acquire assets and a rebalancing of relative risk and volatility.
• Direct acquisition in private markets is expected to remain the primary route for most investors, but many are increasingly looking towards different transaction structures in order to gain and increase their exposure to real estate.

Further analysis shows 32 per cent expect recovery in 2H 2020, while 52 per cent expect recovery in 1H 2021.

Many investors also identified Japan, South Korea, China and Australia as the markets most likely to observe an increase in transactional activity into 2021.

According to newly released data by JLL, first-half investment volumes in the Asia Pacific declined by 32 per cent year-on-year, with second-quarter activity down by 39 per cent year-on-year, accelerating from a 26 per cent drop in the first quarter.

JLL Asia Pacific Capital Markets CEO Stuart Crow said the firm’s interactions with clients reinforced the view that investors would continue to seek defensive locations and sectors where the rental collection experience has been positive.

“Japan and Korea remain high on the preferences for clients, as do sectors such as multifamily, non-discretionary retail and logistics,” he said.

“As transactional activity increases and pockets of value emerge from the crisis, we expect investors to move up the risk curve.”

According to the survey, investors believe an unpredictable environment remains the biggest challenge in deploying capital going into the third quarter.

Approximately 60 per cent cited uncertainty as driving a pause in their transaction activity.

Specifically, underwriting assumptions, rent assumptions, vacancy forecasts, cost of capital and pricing uncertainty were cited as the primary reasons stopping investors deploying capital in the current environment.

JLL Asia Pacific Chief Research Officer Roddy Allan said the pandemic was changing how investors accessed real estate.

“While we typically see a shift to more stable risk profiles during times of uncertainty, many investors are signaling not only a longer-term diversification strategy in Asia Pacific but are also reimagining how they transact in this region,” he said.