Asia Pacific's emerging markets offer consistent growth in real estate investments, says Rajah & Tann Singapore’s Ben Tay

Benjamin Tay of Rajah & Tann Singapore LLP pointed out that Vietnam, the Philippines, and Cambodia are showing steady GDP growth and present investment opportunities.

In an era of market volatility and uncertainty, investors are increasingly seeking stable options for their portfolios. The real estate sector, traditionally known for its resilience, is now facing new challenges due to high-interest-rate climates and shifts in work dynamics. As a result, investment firms are exploring alternative strategies to maintain stability and achieve consistent growth.

Benjamin Tay, Deputy Head for Corporate Real Estate at Rajah & Tann Singapore LLP, has proven himself to be a prominent figure in the Singaporean legal landscape. With 16 years of experience and expertise in many significant corporate real estate transactions in Singapore, he has earned accolades and recognition within the industry.

Tay was 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. He was also identified by Asian Legal Business 2019 in their 40 Under 40 list for Corporate Real Estate, which highlights lawyers who have worked on some of the most significant deals in the past year and have earned accolades from their peers, superiors and clients.

In an interview with Real Estate Asia, Tay discusses the need for investors to adapt their strategies to find consistent growth opportunities and how emerging markets in the Asia Pacific region are offering opportunities for this growth in real estate investments.

With your expertise in the real estate industry, what are some of the trends you have observed in the industry this 2023? How do you think these will play out in the short term?

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. 

At its core, the industry is poised for significant transformation. The shifting work patterns and the looming transition towards net-zero requirements represent more than mere challenges; they demand substantial innovation in the utilization of real estate space. 

As we steer through these changes, we can expect a considerable amount of experimentation and learning.

How can investments in real estate remain stable despite market volatility? Which markets in the Asia Pacific are expected to be drivers for growth?

In times of uncertainty, the tendency to gravitate towards quality investments is common. This general investment tendency holds for the real estate sector as well.

Previously, this has manifested in investments in premium commercial properties in developed cities. Some investment firms balance these low to no-risk investments with riskier ones to provide stability in their portfolios.

However, due to the current high-interest-rate climate and the fundamental shifts in how we work, this approach isn't as straightforward as it once was.

Instead, for those seeking consistent growth, numerous opportunities may exist in emerging markets. With ongoing industrialization and constant GDP growth, real estate values are expected to grow with increasing demands and are from that perspective, fairly stable.

If we look solely at real GDP growth figures in the Asia Pacific region, multiple markets could be drivers of growth. The real GDP growth of Vietnam, the Philippines, and Cambodia has consistently exceeded 5%. Assuming this trend continues, agile investors can secure growth if they can identify and invest in high-quality assets within these countries as real values increase over time.

At the same time, Indonesia, being the largest economy in Southeast Asia, is projected to become the fourth-largest economy worldwide by 2045. Geographical proximity to China makes Vietnam a commonly considered and obvious alternative for businesses applying a "China plus one" strategy, which is aimed at broadening their investment scope beyond just China. However, over a longer period, it is anticipated that this strategy will also include Indonesia, given its status as the region with the largest labour force in the Asia Pacific.

How do you think global demands for ESG compliance and sustainability initiatives affect the real estate industry? What is the importance of these factors to the industry and to the stakeholders?

The imminent – and existential - challenge posed by climate change is anticipated to drive regulatory changes.

Aspects such as net-zero requirements and the continuous push for decarbonization across all sectors (including the real estate sector) are essential considerations that investors must grapple with in their current investment decisions.

Given that climate change drives many ESG (Environmental, Social, and Governance) compliance and similar initiatives, the primary metric to consider would be a property's carbon footprint.

ESG considerations are fundamental to the real estate industry and its stakeholders as they directly affect the demand for and the use of real estate properties.

Many tenants and occupiers may themselves also be under comparable ESG obligations – whether at a regulatory or a company level, which could dampen the demand for specific real estate if it fails to meet key ESG metrics.

However, just because a property meets today's regulatory standards doesn't guarantee it will comply with future requirements in this area. A future-proof investment strategy should involve a best-in-class approach to ESG compliance, with a particular emphasis on net-zero requirements.

As ESG regulations continue to evolve, and many initiatives are rooted in today's best practices and standards, it would be prudent for investors to seek advice (legal and otherwise) regarding the applicable ESG regulations in each jurisdiction from real estate specialists.

What opportunities does the rising demand for data centres provide for the Asia Pacific real estate industry and organisations? How can the stakeholders maximise this trend?

The proliferation of generative AIs, which appears likely to significantly transform the way we work, is expected to spur increased demand for data centres and redevelopment of older data centres. AI requirements are both compute and data-intensive, and even fairly recently built data centres may not accommodate the high power density requirements of AI workflows.

This is in addition to general trends in the Asia Pacific of increased internet usage and demands for remote work, which are fundamental drivers of demand for data centres.

Besides making direct investments in data centres, investors are also considering investments in the energy sector and other utility infrastructure. This infrastructure, especially those concerning renewable energy generation, plays a crucial role in supporting data centre operations.

As part of this year’s esteemed panel of judges for the Real Estate Asia Awards, what qualities are you looking for in the entries?

The primary characteristic I seek in real estate is distinctiveness and future readiness. Real estate development should, of course, be able to satisfy the requirements of their current users.