Demand For Older Commercial Properties In Asia Pacific Wanes
ASIA PACIFIC – A new report from property consultancy Knight Frank revealed that landlords and property owners are undertaking “massive” moves to update and enhance commercial properties across the region, as investors shun ageing assets amidst the COVID-19 pandemic.
“The pandemic has ushered in a period that can be described as the Great Asset Repurposing of the Decade,” said Christine Li, Research Head for Asia Pacific at the property consultancy.
“Investors are increasingly gravitating towards newer assets that are less than 20 years old, indicating the pool of buyers for older assets is shrinking.”
Li explained that while demographic and consumer trends has accelerated property obsolescence, COVID-19 has emerged as a catalyst to upgrade commercial properties, as hasn’t been a greater impetus for landlords in the past 10 years to really review their property portfolios and modernise their assets, pivot their purpose, & fulfil their tenants’ rapidly changing needs.
Based on an analysis by Knight Frank, the percentage of all commercial properties transacted that are 20 years old or above reached 46 percent in 2018. However, this declined to 37 percent last year.
In Singapore & Hong Kong, their office stock gradually shifted towards a greater proportion of Grade A buildings from 2016 to 2020. In the first mentioned market, the rate increased from 22 percent to 33 percent, while that in the Chinese territory edged up from 64 percent to 65 percent.
“Across the region, we are witnessing massive moves to repurpose assets and bring them to relevance in the evolving landscape,” according to Knight Frank’s report entitled “Repurposing on the Radar – A Unique Opportunity at an Exciting Time”.
The property consultancy said the most cited examples of asset repurposing involve the conversion of hotels and office space into living sectors like build-to-rent or residential developments, while older industrial properties are transformed into business parks and data centres to extract more value.
Given that retail and hotels have been significantly affected by the ongoing global health crisis, there has been lots of activity in recent times to turn these properties into living sectors, office space and industrial premises, all of which are more resilient during the pandemic.
“The property cycle also comes into play, as asset owners have diverse views on what is hot and what is not in various territories across the region. For instance, since COVID-19 has had limited impact on the office sector in Seoul and Tokyo, asset owners are actively looking for opportunities to convert hospitality assets into offices and coworking spaces,” noted Knight Frank.
“However, the same sectors (i.e. offices and coworking space) are not in favour in other markets such as Kuala Lumpur and Shanghai. A structural oversupply of the office market has led office landlords to explore conversion opportunities of older office stock into senior living, residential apartments, and even specialist hospitals in these places,” added the property consultancy.