KUALA LUMPUR: The real estate sector, which has traditionally been regarded for its resilience, is confronting new challenges as a result of high interest rates and shifts in work patterns, said Benjamin Tay, deputy head for corporate real estate at Rajah & Tann Singapore LLP.
He said that as a result of this, investment firms are looking towards different techniques to ensure stability and steady development.
Investors are increasingly seeking solid solutions for their portfolios in a period of market volatility and uncertainty, he said.
Tay believes that investors must alter their techniques in order to uncover persistent growth possibilities.
He also mentioned how rising markets in the Asia-Pacific area, such as Vietnam, the Philippines, and Cambodia, are providing chances for real estate investment growth.
Tay said that the real estate industry is currently navigating a fascinating period.
"From an investment perspective, it's grappling with the arguably cyclical challenge of high interest rates, a trend that seems likely, in my view, to persist due to persistent inflation numbers.
"Given this context, agile investors are strategically zeroing in on opportunities within specific sectors that exhibit robust demand and potential growth, such as cold chain logistics and hospitality," he said.
He believes that the real estate business, at its foundation, is primed for tremendous transformation.
Shifting work habits and the impending transition to net-zero requirements represent more than just problems, he said, adding that they necessitate significant innovation in the use of real estate space.
"As we steer through these changes, we can expect a considerable amount of experimentation and learning," he told a property portal.
Tay is a prominent figure in the Singaporean legal landscape. He has 16 years of experience and expertise in many significant corporate real estate transactions in Singapore.
He has been recognised by The Legal 500 Asia Pacific 2022 and described as one who "now leads many of the firm's key deals."
He was named a Rising Star in Real Estate by Asialaw Profiles 2022 and a Leading Individual in Real Estate by Best Lawyers 2023.
Tay said that in times of uncertainty, people tend to gravitate towards quality investments.
This broad investment trend also applies to the real estate sector, he said.
Tay said that previously, this expressed itself in investments in high-end commercial real estate in established cities, and, to offer stability in their portfolios, some investment firms balance these low- to no-risk investments with riskier ones.
However, due to the present high interest rate environment and fundamental shifts in how we operate, this method is no longer as simple as it once was.
Instead, investors wanting consistent growth may find several options in emerging markets. With continued industrialisation and consistent gross domestic product growth (GDP), real estate values are likely to rise in tandem with rising demand and are thus relatively steady, he said.
Tay believes that if investors only look at actual GDP growth rates in the Asia-Pacific area, numerous markets might be growth drivers.
Vietnam, the Philippines, and Cambodia have all experienced real GDP growth rates that have continuously exceeded five per cent. Assuming that this tendency continues, astute investors can secure growth by identifying and investing in high-quality assets within these countries as actual values rise over time, he said.
Tay also said that Indonesia, the largest economy in Southeast Asia, is expected to become the fourth-largest economy in the world by 2045.
Vietnam, he said, is a frequently regarded and obvious possibility for enterprises pursuing a "China plus one" strategy, which aims to widen their investment scope beyond only China due to its geographic location.
However, considering its importance as the Asia-Pacific region with the greatest labour force, it is expected that this plan will include Indonesia over time, he said.
Meanwhile, Tay said that the rise of generative artificial intelligence (AI), which looks to have the potential to fundamentally revolutionise the way people work, is projected to drive higher demand for data centres and the rehabilitation of ageing data centres.
According to him, AI requirements are both compute- and data-intensive, and even newly built data centres may not be able to meet the high power density requirements of AI operations.
This is in addition to broader trends in Asia Pacific of rising internet usage and demands for remote work, both of which are major drivers of data centre demand.
Investors are considering investments in the energy industry and other utility infrastructure in addition to direct investments in data centres.
This infrastructure, particularly those related to renewable energy generation, is critical to enabling data centre operations, Tay said.