PART 2: The Capital

R E S E T 2 0 2 2

PA R T 2 : T H E C A P I TA L

SECTORAL DIVERSIFICATION

strategies are likely to keep Asia Pacific investor interest closer to home either within the region or within their domestic market. Avoiding cross-border investment eliminates exposure to currency fluctuation and therefore hedging costs while simultaneously leverages

greater market insight and existing debt and investor relationships. Conversely a wide geographical reach in Asia Pacific can create a natural hedge, and this is acknowledged as being the direction of travel for some platforms and funds.

OFFICE The office sector is arguably the most mature across the region and so understandably is the sector that most investors primarily navigate to. Here, the message is mostly positive. The region continues to experience positive demand – regionally, 175 million square feet more of office space is currently occupied than at the start of the pandemic – although this is tempered by a somewhat anaemic rental outlook. Here we see bifurcation, firstly between the dynamics of supply and demand. Secondly, there is sub-market bifurcation, with high amenity, high-quality buildings experiencing the highest tenant demand. This presents investors with two main options – focus on high-quality assets or seek out under-serviced assets in desirable locations and seek to improve their credentials.

NOW IS NOT THE TIME TO BACK DOWN ON BUILDING UPGRADES. THE “BROWN TAX” ON LOWER CREDENTIALLED ASSETS COULD BE LARGER THAN CURRENT AND SO CAPITAL EXPENDITURE REQUIREMENTS NEED TO BE BALANCED WITH OPPORTUNITY COSTS, I.E. THE COST OF NOT MEETING MARKET REQUIREMENTS FOR BUILDING SPECIFICATION.

Expect a greater focus on assets in the Asia Pacific region as weakness in some other regions sharpens investor focus on fewer cross-border destinations.

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