Phoenix, CapitaLand, CPPIB, Ivanhoe Talk Japan, India Office Opportunities: MTD TV

While office markets in the US have been struggling, value can still be achieved through investments in desk space in some of Asia Pacific’s top locations, thanks to growing tech demand in places like India, and high occupancy in Japan and other core markets, senior executives from Phoenix Phoenix, CapitaLand Investment, CPP Investments and Ivanhoe Cambridge said on MTD TV on Tuesday

“Buy-fix-and-sell” strategies can produce attractive returns for buyers of grade B office properties in Tokyo and major regional cities in Japan, according to Daisuke Hayashi, a partner and Japan chief representative at Phoenix, who was speaking in a panel on value-add and opportunistic office investments, which was sponsored by Yardi.

Hayashi noted, that with Japan’s low interest rates encouraging more international investors to enter the market, alongside the country’s already deep financial system, there are more opportunities to find buyers for existing assets and to acquire fresh properties.

“The market liquidity has increased compared with five years ago, the transaction market has gone up. Not only Japanese investors, including J-REITs, Japanese private REITs, but also a lot of newcomers from foreign countries,” Hayashi said. “I feel like we have more liquidity so once you have stabilized good-looking assets, it will not be so difficult to find good buyers in the present market.”

Tech Expansion Drives Office Value

Office demand has also been on the rise in India as tech firms and global capability centres (GCCs) expand hiring, with occupiers in those markets having to provide more spacious workplaces to compete for talent, according to Gauri Shankar Nagabhushanam, CapitaLand Investment’s chief executive officer for India business parks.

“Your real estate used to be about 65 to 70 per square feet of office space per employee. Now that ratio has gone up to 100 and some of them are splurging to 120 to 150 (per square foot),” Nagabhushanam said. “It’s a function of all these three: increases in tech take-up, increase in attractiveness of GCCs and also the quality of space that is required.”

Nagabhushanam said that, since 2021, employment in India’s tech sector has expanded by about one million people, and that requires an estimated 100 million square feet (9.3 million square metres) of additional workspace. However, the required supply has not yet hit the market.

This shortage space of space continues to create opportunities for developers, with CapitaLand having fully leased out a business park in Hyderabad in advance of its opening last month.

“We ourselves are developing close to 11 million square feet, which we’ll be bringing to the market over the next two to three years so India is looking quite positive,” he said. “We do expect 2024 to be better than 2023.”

Josephine Yip, senior director for Asia Pacific investment and asset management with Canadian pension fund manager Ivanhoe Cambridge expects that India will continue to be a “bright spot” as the country grows as a source of science and engineering talent for global companies.

While some lower-end jobs may face a threat from adoption of generative artificial intelligence, Yip expect that higher end employers (and asset owners) could receive a boost from the evolving technology.

“There are also value added opportunities within the AI space in having the workforce learn how to complement the existing skills base to deliver better services and higher value added services. So while there might be attrition at the lower end, I think at the end of the day India, the cost advantage is going to shine through,” she said.

Ivanhoe Cambridge, which managed more than $56 billion in real estate assets at the end of 2022, early this year made its biggest bet yet on India’s office sector through a $1.86 billion partnership with Singapore’s Mapletree Investments to develop, acquire and operate tech-oriented workplaces.

Markets Polarise

For Hari Krishna V, a managing director for real estate at CPP Investments, who is also part of the pension fund manager’s global leadership team, with interest rates rising and office occupancy still not back to pre-pandemic levels in most markets, office investors need to ensure that their properties are ready to appeal to premium occupiers that are remaining competitive for top talent.

“There is a deep polarisation in several markets, the winners are assets that have high ESG credentials whose appreciation has gone up quite significantly, especially in a post-COVID environment,” Krishna told the panel. “The final element, which is important from an investment performance lens, is the occupier base… occupiers who are returning to the office and are looking to be back in the office.”

Just last year CPPIB launched a $670 million India office park joint venture with local conglomerate Tata Group, with that nation-wide venture seeded with a business park in southern India’s Chennai.

That deal came just one year after the institution, which manages more than $419 billion in assets, invested $350 million into a follow-on business park joint venture with RMZ – the largest privately-owned real estate firm in India, with that initiative focusing on developing, acquiring and holding mixed-use office buildings in key cities across India including Bangalore.

Future of the Office Up Next

Following today’s exploration of value-add and opportunistic strategies, the Mingtiandi Office Strategies Forum series will conclude on Thursday, 26 October with a panel on the future of the office, featuring speakers from Brookfield Asset Management, LaSalle Investment Management, Yardi and Benoy.

That session, which will investigate the growing importance of sustainability, while also exploring the “back to the office” battle across Asia, includes speakers from two of the world’s largest property fund managers with Leonie Wilkinson, senior vice president for portfolio management with Brookfield Asset Management joining the talk, along with George Goh, head of acquisitions and asset management for Southeast Asia at LaSalle Investment Management.

With adoption of flexible design practices also on the rise, at the same time that property owners look to boost efficiency, the panel will also include Bernie Devine, senior regional director for Asia Pacific at Yardi, whose company provides information systems to some of the world’s largest real estate investors, and Terence Seah, a director who serves as head of Hong Kong, Singapore and Shenzhen for international design firm Benoy, whose firm has led the design of some of the region’s most iconic properties.

Following the office forum, Mingtiandi hits the road to Singapore for a full-day event at the Conrad Centennial in the Lion City.

A partial list of speakers for the Mingtiandi Singapore forum includes the following industry leaders:

• Alessandro Fiascaris, Head of Asia Pacific, Oxford Properties
• George Agethen, Co-Head of Asia Pacific, Ivanhoe Cambridge
• Sangwook Kang, Director, KIC
• Fan Li, Managing Director, Singapore, Warburg Pincus
• Imelda Tham, Managing Director, Investments, Gaw Capital
• Andrew Lee, Director, Head of Investments, Singapore and Southeast Asia, BlackRock
• Suchad Chiaranussati, Founder and Chairman, SC Capital Partners
• Sarah Winbur, Senior Portfolio Manager, APG Asset Management

Tickets for the forum are still available here, with more than 220 senior executives expected to attend.