Asia Pacific Four Quadrants

Private equity real estate investment involves an investor taking an equity interest in a property or a portfolio of properties an investment manager has acquired using private capital. Common forms of private equity real estate in Asia Pacific include private equity funds/co-mingled funds, joint ventures, separate accounts and syndicates.

• Private equity fundraising momentum in Asia Pacific has slowed significantly over the past 12 months as many global institutional investors experience a denominator effect in their overall portfolios and re-pricing in real estate lags other asset classes. In the private equity space, the AUM of close-ended funds in Asia Pacific has grown by 11% over the past 10 years. However, in H1 2023, Asia Pacific private equity fundraising for CRE amounted to US$10.9 billion, a fall of 21% from the US$13.9 billion raised in H1 2022.
• In contrast, dry powder levels for real estate private equity funds remains at all-time highs.
• While expectations are that private equity fund returns will exhibit below-trend growth, the curve should not be as severe as that witnessed during the Global Financial Crisis.

A public equity real estate investment involves purchasing an interest in CRE by investing in publicly traded exchanges which focus on real estate returns. Primary types of public equity real estate are real estate operating companies (REOCs) and REITs.

• Japan is the largest REIT market in Asia Pacific. Together with Australia and Singapore, this market comprises around 80% of the CRE public equity space in the region. At the close of Q2 2023, there were 309 active REITs in Asia Pacific with a combined market capitalisation of US$376.5 billion. 
• Overall dividend yields for listed CRE vehicles are now rising in most Asia Pacific markets.
• Total returns for Asia Pacific REITs have generally seen a decline over the past 12 months.
• NAV-to-price ratios for Asia Pacific REITs have been trending down for an extended period.

Most private real estate debt involves bank financing from institutional lenders, or investing in debt instruments that are either backed by or tied to commercial real estate. The primary types of private real estate debt include senior secured debt, mezzanine debt, preferred equity positions and distressed loans/NPLs.

• Debt costs are showing signs of stabilising across Asia Pacific. Most central banks in Asia Pacific have either ended or are considering ending the current cycle of rate hikes. Major central banks in countries such as Australia, New Zealand, Korea, and India have already halted interest rate increases this year as inflation eases.
• While debt pricing has now stabilised, the upcoming funding gap for commercial real estate assets is driving demand for bridge and development loans.

Public real estate debt is an investment that provides debt financing for CRE properties. While not exclusive to the public debt realm, the primary types of public real estate debt include commercial mortgage-backed securities, residential mortgage-backed securities and corporate bonds.

• Bond issuance in Asia Pacific remains dominated by mainland Chinese state-owned developers. As of August, some US$150 billion of publicly listed property bonds had been issued in the year-to-date, with the majority of this figure accounted for by mainland Chinese developers.
• Asia Pacific green bond issuance grows by 167% in 2018-2022.
• Bond issuance remains strong but risk of onshore mainland Chinese bond defaults mounts after a wave of offshore defaults.