Green Assets from Investors Becoming a Growing Trend in Real Estate

Green assets are expected to be in high demand by investors, claims M&G in its report on global outlook, which highlights the major trends that are currently impacting the world of property investment. “The result will be a growing divergence in value depending on the quality of the asset and the sustainability requirements of occupiers. The tenant-landlord relationship will be defined in the process of reaching net zero, which requires unimaginable levels of cooperation,” the report states.

Piccadilly Grand showflat is situated at Northumberland Road District 08 of Singapore.

The emphasis on the green aspect of real estate been gaining momentum in Asia Pacific and is currently “gaining significant momentum” According to Richard van den Berg, fund manager for Asia of M&G Real Estate, in a panel discussion on Asia Pacific’s residential real estate forecast for 2022.

“I believe that the entire Covid effect has made people realize how crucial that it is be in a safe and healthy work environment,” he says. This is evident through calls for high-efficiency particle air filters or better ventilation, as well as methods to control crowds in workplaces, as an example.

“In Asia, the ‘green revolution’ will create significant prospects for investors especially by financing green projects as well as the supply of renewable energy as well as construction and manufacturing projects,” says M&G.

This can be observed through initiatives like Singapore’s CleanTech Park and South Korea’s Pangyo Technovalley 2, which give investors the chance to benefit from clean-tech development and structural changes that are longer-term in relation to ESG by investing directly in real estate properties, which highlights the company.

M&G states that buildings with inadequate environmental, social and management (ESG) features will likely be subject to greater pressure. Additionally, “asset managers will face an uneasy balance between delivering ESG improvements and having to weigh the short-term cost in comparison to the long-term performance advantages” M&G states.

CBRE is also forecasting the possibility of stricter ESG standards in the near future. “With more countries vowing to achieve carbon neutrality by 2030 and 2060 and occupying companies have to comply with ESG standards for sustainable disclosures,” it highlights in its report on market outlook.

“This year, businesses will scrutinize their choices for office spaces based on sustainability and wellness-related features, and the landlord’s ESG performances,” it adds, noting that “green leases, energy audits, and resilience will appear more prominently in the leasing portfolios”.

The guidelines on hybrid work are also likely to impact the workplace sector. “While occupiers want to save money through a smaller footprint however, they have concerns over the impact this could have on engagement, productivity and corporate culture” CBRE says. CBRE. “The problem for the occupiers is how to redefine the purpose of the office, while monitoring space usage and establishing an agile office network to accommodate a larger workforce that is dispersed.”

Office expansion is set to increase

Within Asia Pacific, CBRE expects that offices across the region will reopen in the 2H2022 timeframe. As of now, Hong Kong, South Korea and Taiwan’s traffic patterns in office zones have already returned to pre-Covid levels as per Google Mobility Index data. It is believed that Asian companies will likely return to office-based work. Initial responses to the issue from North Asia showed that despite the widespread spread of Covid-19, many companies have remained in offices, but with restrictions on team rotation or occupancy.

New office space in Grade-A across Asia Pacific is projected to increase by 15% per year to nearly 70 million square feet by 2022, which is the largest amount in more than 10 years. With nearly half of the new office space being located in China cities such as Shanghai as well as Shenzhen will witness an increase in supply by 2022, according to CBRE. However, the greatest supply pressure will occur in non-CBD areas. This makes up 90% of the new space.

CBRE forecasts the leasing industry is predicted to increase across Hong Kong, Japan and Australia however, the demand is expected to be lower in South Korea and Singapore will be constrained by the new supply.

It is also expected to be flight-to-quality relocations that will constitute an “major factor in demand” in the coming year, the report states. This is due to the emphasis placed on wellness and sustainability.

To achieve this, CBRE advises office landlords to invest in intelligent and green buildings, as well as retro-fitting older buildings. The new ESG standards must be metby incorporating sustainability considerations into every phase of the lifecycle of a building like design, planning construction and operation.

To accommodate a degree of uncertainty and flexibility, landlords could consider ways to incorporate flexible office spaces into their portfolios as well as forming alliances with coworking operators CBRE suggests. CBRE.

Bright spots for retail stores

Even though the pandemic dramatically increased the growth of online shopping however, there appears to exist a need for brick-and-mortar shops. One of the reasons is the need for the omnichannel delivery and sales. Physical stores play a role in fulfilling online orders in the “click and collect” model. To this end, many online retailers are joining forces with physical stores to enhance the customer experience , and product return processing is increasingly happening through physical retail stores as per M&G.

CBRE anticipates more emphasis on the concept of experiential retail. “With the shift towards internet-based shopping in the wake of the pandemic, which has come in the face of the physical stores shops and retailers, they have to be able to differentiate their offerings in order to attract customers back to brick-and-mortar shops,” it says. Methods to do this include the launching of promotions as well as expanding display areas and establishing more thematic stores, and implementing innovative F&B ideas that can make shoppers more interested.

M&G predicts that the retail market may be nearing the “turning point in its cycle and cites early signs of increasing capital values as well as positive sentiment in certain parts that are part of the market. “As the economy recovers rents for retail may stabilize or increase, as they move ahead, which could trigger the return of investors who are seeking yield,” it says.

But, CBRE advises its clients that, while growth will likely to last through the year, it is likely that the expansion is likely to be driven by certain malls and street shops that are outperforming. “Secondary retail stores — including those properties that are located in the core areas are not likely to be subject to further rent cuts, and tenant departures,” it says.

It is expected to China along with Hong Kong will see retail rent growth accelerate from last year’s levels however, it will remain in the single percentage. The high-street retail outlets in Taipei as well as the majority of Australian CBD districts will likely undergo an additional rental correction in 2022, but with a less pronounced rate. The trend is likely to persist with a high level of vacancy and a shortage of international tourists and students However, a swift change could be anticipated after the return of international travel as it states.

Looking ahead, while CBRE believes that the lease market for retail will be favoring tenants in the coming year, the firm anticipates that “the trend will slowly change as landlords take a risk-sharing approach to leasing that involves the use of turnover rent clauses as well as more fit-out assistance and tenant improvement”.

For general retailers pop-up shops and stores that have leases shorter are expected to continue to grow because they allow them to gauge consumer reaction as well as landlords to be able to change the mix of tenants more frequently according to CBRE.