Hideharu Ichii will join AMP Capital as a Portfolio Manager / Analyst in the Global Listed Real Estate (GLRE) team, with over 18 years’ financial experience and an extensive background in the Japanese real estate market.  This appointment reflects the growth opportunities for global listed real estate and the importance of the Japanese market.  He will be based in Hong Kong and commence on 2 July 2018.

Prior to joining AMP Capital, Mr Ichii worked as senior portfolio manager at APG Asset Management Asia for seven years, primarily covering Japan and Australia within the firm’s listed real estate Asia Pacific team. Other prior roles include portfolio management and research roles at CBRE Global Real Estate Securities and Taiyo Pacific Partners as well as corporate finance and equity sales roles at Nikko Securities.  Mr Ichii was also actively involved in promoting the Global Real Estate Sustainability Benchmark (GRESB) in the Japan property market.

Anika Minocha has also been appointed to the role of Portfolio Manager / Analyst, based in Sydney.  Ms Minocha will join the team in July 2018 after completing various rotations on the AMP Capital graduate program including two stints within the GLRE team.  Prior to joining AMP Capital, Anika completed an Investment Banking (Real Estate) internship with Bank of America Merrill Lynch in Sydney.

AMP Capital Head of Global Listed Real Estate James Maydew said he was excited to announce these two new appointments into the team.

“AMP Capital’s vision is to be a pre-eminent global investment manager and provide clients with exceptional investment opportunities. With a track record that extends back to 2002, the Global Listed Real Estate business is fundamental to this effort with a strong focus on strengthening our global capability that delivers for our investors.

“As part of our commitment to continuous improvement and a high performance-led culture I’m pleased to welcome such a highly experienced and respected investor to the team.  Hide will bring valuable expertise in the allocation of capital within the Japanese market and, along with Anika, will provide an essential contribution to the broader GLRE team,” Mr Maydew said.

AMP Capital remains committed to its strong global listed real estate capability and these new appointments reflect the sheer size and depth of the global listed real estate market, along with the exceptional opportunity to deliver outperformance for clients.

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What are the sectors to watch for listed real estate in 2018?

AMP Capital Head of Global Listed Real Estate James Maydew discusses the outlook for listed real estate in 2018 and the sectors to watch.

Global listed real estate has been enjoying a favourable outlook, supported by historically-low interest rates and improving economic sentiment.  Even though rates may have seen their cyclical lows, we expect rates to remain low relative to historical averages and see the return of inflationary pressures to assist many segments of the real estate market that are able to access economic growth during 2018.

There are some areas that we’re expecting to perform particularly well during the year due to their exposure to long-term secular growth trends.

Datacentres

Firstly, the proliferation and dependency of data globally is driving the internet ecosystem of the cloud to new levels of mainstream adoption.

Not only that, consumers, especially Millennials, the largest living generation who are now driving the economy, have adopted data-heavy content such as Netflix, YouTube, Instagram and Spotify more frequently.  All this data needs a secure home that can be easily accessed by consumers with minimal latency.

That’s where datacentres play a vital role in connecting the global population to the internet and charging rent and connection fees for the privilege.  Between 2015 and 2020, it is anticipated that global datacentre workloads will increase by 27 per cent CAGR and this will continue to drive demand for the real estate and infrastructure that house the network especially in markets such as North Virginia in the US where 70 per cent of the global internet traffic flows through.

As landlords to the internet and the cloud, datacentres are well positioned to continue to capitalise and deliver outsized growth.

Ecommerce

Consumption trends are shifting dramatically and have been for many years.

We all know about the disruption of the retail world by ecommerce players such as Amazon and Alibaba, and have heard the horror stories of ‘the death of the US mall’.

However, there are also winners in the real estate market from this trend that benefit from this structural shift.  Logistics facilities have been nicknamed ‘cheap malls’ in certain real estate circles as they are now a vital cog in any ecommerce transaction and play the same role that malls have always done via storage and access to goods for sale.

The UK is a prime example of this trend, with ecommerce penetration (ex food) approaching 40 per cent, and forecast to move towards 50 per cent in the coming three to five years.  This is driven in part by the proliferation of mobile technology with 47 per cent growth in online sales via mobile devices in 2016.

It’s occurring at a point in time where industrial floor space supply has been shrinking due to the conversion of land to ‘better and higher use’ real estate such as residential.  This is causing an inflexion point in the logistics market, squeezing rents, capital values and occupancy to all-time highs.

Demographics

This year, the first Baby Boomers turn 70 and over the next 20 years they will all start to retire from the workforce and begin allocating more of their capital to goods and services that assist their changing lifestyles.

Demographics drive everything and we have an impending aging population crisis on the horizon in many western countries as this massive cohort stops accessing credit, spending on consumption and begin drawing down on it through retirement.

Unfortunately for the Baby Boomers, they will also be allocating a greater proportion of this finite capital to their growing healthcare needs.

The maths is simple: in the US, if you are over 65 years old, you typically visit the doctor seven times a year at a cost of $9,800 versus a person aged under 45 who visits 2.3 times and spends $2,700 on average.

Given the population of +65 year olds is projected to grow 100 per cent between 2010 and 2050, this will create huge pressure on existing healthcare infrastructure and is a massive tailwind for real estate owners that offer high quality health care facilities that match this demand such as medical office buildings.

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Christopher Deves

A significant demographic shift in Asia has resulted in the emergence of senior living real estate as a significant potential investment opportunity in economies such as Japan, China and Korea, according to AMP Capital.

A new whitepaper entitled Investing in the grey boom: A role for senior living real estate in Asia, which was authored by AMP Capital Associate Director Christopher Deves, looks at shifting trends in aging in these countries from a cultural and economic perspective and how these changing demographics are creating demand for senior living real estate such as aged care homes and assisted living facilities.

AMP Capital Co-Head of Global Listed Real Estate James Maydew said if Japan, China and Korea can securitise their senior living real estate assets, as has been the case in other regions such as North America, it has the potential to be a powerful opportunity for long-term investors in real estate.

Mr Maydew said: “Listed real estate is connected to some of the most important long-term trends in society. Demographic trends such as declining birth rates, urbanisation and increasing workforce participation are challenging the traditional model of in home family care in Asia. Coupled with rapidly aging populations in Japan, China and Korea, this should see demand for greater investment in senior living real estate including from global investors.

“Furthermore an increasing pool of capital through growing domestic pension schemes in Asia, the desire for Asian investors to invest in local real estate and the requirement for liquidity should see the long-term structural demand for listed real estate investment opportunities in the region continue to grow.”

The whitepaper shows a number of long-term structural trends compromise the sustainability of traditional models of family care in Japan, China and Korea. For example, Tokyo has been a beneficiary of internal population growth for more than 20 years as urbanisation trends see children move away from their ancestral home. And increasing workforce participation, such as in Korea where the female workforce participation rate has increased from 46 per cent in 1980 to 57 per cent in 2014, means there are less people to care for elderly family on a regular basis.

Mr Maydew added: “The power of demographics to fundamentally shape society”s demand pattern for all real estate sectors should be a key consideration for all investors in the asset class. Japan”s REIT market is well established, aided by a long history of zero interest rates and the resulting appetite for yield.

“The emerging senior housing opportunity could be the catalyst for both Korea and China to further develop their REIT options, and provide an attractive option for foreign investors looking to diversify away from the more established REIT hubs such as Singapore and Hong Kong.

“Clearly there remain some challenges to the emergence of senior living as an investible sector in the region but the sheer weight of demographic change suggests these will be hurdles rather than roadblocks over the long term.”

Investing in the grey boom: A role for senior living real estate in Asia is the second in a series of AMP Capital whitepapers on the listed real estate sector. The whitepapers aim to showcase the diverse individual investment themes and investment opportunities in real estate.

The paper can be downloaded here.

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AMP Capital’s latest White paper looks at the correlation between listed and direct real estate.

Investors seeking exposure to real estate should consider listed as well as direct given the returns, diversification and volatility of the asset classes are very similar over the long term, according to AMP Capital.

Don’t tell me it’s not real estate, a white paper written by AMP Capital Co-Head of Global Listed Real Estate James Maydew, demonstrates the correlation between listed and direct real estate increases significantly as the investment horizon lengthens. The daily liquidity of listed real estate,  however, means it behaves more like equities if they only invest in the short term.

Mr Maydew said: “Real estate, both listed and direct, is a long-term investment by the very nature of leases that are contractually committed to and the longevity  of the physical assets. The two asset  classes are essentially the same over five years and beyond as the returns are driven by the underlying real estate cash flows they have in common. For investors who want to maximise risk adjusted returns, an asset allocation between both listed and direct should be utilised at different points in the cycle. Listed real estate can also be a useful proxy for direct for investors  who want to get set in real estate but who are struggling to deploy their capital  given global competition for quality assets.”

The  paper also highlights how listed real estate can be used by investors as a harbinger of what the direct market is likely to do. Analysis of whether real estate investment  trusts (REITs) are trading at a premium or discount to net asset value (NAV) has proven to be an accurate predictor of how the direct market will move in the coming year.

Mr  Maydew explained: “Put very simply, if a REIT trades at a premium to its NAV,  the market believes its assets will appreciate above levels indicated by market  pricing of the underlying direct real estate. If we look at listed real estate in the US since 1988, whenever prices have been at a premium to NAV, direct real estate appreciated 96 per cent of the time in the following 12 months.”

Globally,  listed real estate is currently trading at a discount to NAV. The biggest discounts are in Asia, with the US and the UK markets also trading at a discount. Australian REITs are trading at a slight  premium, with larger premiums ascribed to Continental Europe and the Japanese REIT market.

Mr Maydew added: “In individual markets where listed real estate is trading at a discount to NAV, the best management teams are taking advantage of strong  pricing in direct real estate markets, selling on-core assets and utilising the proceeds to either de-lever balance sheets or shrink their equity base by returning capital to investors.”

Don’t tell me it’s not real  estate is the first of a series of AMP Capital whitepapers on listed real  estate. Mr Maydew noted: “More global investors are allocating to listed real estate and they are hungry for knowledge and insights about the asset class.  We intend to release a number of white papers this year on the sector  more broadly as well as a range of diverse individual investment themes such as senior living REITs, shopping malls and the impact of disruptive technology on  real estate.”

The paper can be downloaded here.

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Tim Humphreys

Tim Humphreys said “Next year is shaping up  to be an interesting time for financial markets as the post-Global Financial  Crisis bull market faces a key test: dealing with the US Federal Reserve’s rate  decisions. Some people believe low short-term interest rates have been positive  for financial markets and higher rates will therefore be negative. But markets are  not this simple and as long-term investors we are more focused on the long-term  borrowing cost and cost of capital.

“Much focus has been on the changes in the global oil market and the ‘lower for  longer’ crude oil environment, but our view is that we are in a ‘lower for  longer’ yield environment globally and despite an inevitable first rate hike,  we think the Fed will be cautious not to go too far as the rest of the world is  still weak.  Our view is that the strong  demand that we’ve experienced over the past decade for real assets that offer  high and sustainable yields will continue in 2016.”

Key trends for 2016: direct real estate

AMP Capital Global Head of  Property, Carmel Hourigan said: “Unlisted commercial property still provides  a very compelling investment proposition, particularly in Australia.   While cap rates continue to compress to historically low levels, Australian  real estate remains relatively attractive compared to other global markets and  asset classes and the income return alone is very compelling. Capital markets  will continue to be the most significant driver of investment performance  during the next 12 months.  Demand (particularly from offshore investors)  for high-quality Australian real estate is insatiable.  The fall in the  Australian dollar has only served to make Australian real estate more  attractive. The big differentiator to the last cycle is the fact that it’s  generally equity, not debt, driving pricing.  However, high quality real  estate is in limited supply and hence landmark’portfolio’ transactions are  commanding a lot of interest with a lot of domestic players priced out of the  race.  With major institutional investors from Japan, China and Norway yet  to put a toe in the water in Australia, we expect capital markets to remain  deep for some time yet.

“Double-digit  returns from unlisted core funds are likely to continue for a little longer but  funds need to be positioned for the next downturn.  We have been divesting  non-core assets to ensure portfolios are defensively positioned both in terms  of asset quality and location. Going into 2016, we have a strong bias to Sydney  and Melbourne office, and high quality regional shopping centres.”

Key trends for 2016: listed real estate

AMP Capital Deputy Head of  Global Listed Real Estate James Maydew said: “Europe is extremely  attractive; it’s in the early phases of significant monetary stimulus. Hard  assets with contractual income are well positioned to benefit from this and  listed real estate fits that criteria.  We  see great opportunity in certain core German cities – due to strong  urbanisation, immigration and net household formation – and Spanish office. We  expect certain Spanish markets to have some of the fastest growing rents in the  world over the next three years.

“M&A  is also likely to ramp up in 2016 globally as US Fed rate hikes create  volatility and dislocation in the markets.   This will present companies with a strong balance sheet and cost of  capital to acquire publicly listed real estate trading at discounts to the  direct market, given the ongoing arbitrage between the private and public  markets.

“Urbanisation  and infrastructure spend in global, gateway cities is also a strong theme.  Companies with assets or development  expertise in markets positively impacted by this structural trend will continue  to benefit in 2016 as rental values grind higher. London West End, Mid/Downtown  Manhattan and Central wards of Tokyo are large beneficiaries of this momentum,  and can be accessed via retail, office and residential depending on the city or  infrastructure project.  In Japan, there  is also value in the lodging sector, given the country is preparing for the  Olympics and the Rugby World Cup during the next four years and the government  has an explicit target to increase international visitors.”

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Outlook for real assets in 2015

AMP Capital, a long-term investor in real assets, expects further demand for prime real estate and infrastructure assets in 2015 as institutional investors such as global pension funds, insurers and sovereign wealth funds continue to search for more consistent income and capital preservation.

AMP Capital expects the real assets sector – incorporating listed and direct real estate and infrastructure – will be shaped during the next 12 months by:

• The end of quantitative easing in the US and that economy’s focus on growth
• The sheer weight of available capital continuing to drive markets
• Strong demand and competition for core assets
• Large mandates targeting large, lower-risk, higher-yield investments
• Major infrastructure investment in Australia and the state governments’ asset sales programs
• Continued investment in the US energy sector and its changing energy mix

Key trends for 2015: listed real estate

AMP Capital Deputy Head of Global Listed Real Estate James Maydew said: “Sovereign wealth funds and pension/superannuation funds will continue to lead the charge for both listed and direct real estate in 2015. Most major pension funds around the world have recently lifted their allocation to real estate, some as high as 15 per cent, using a mix of direct and listed. We expect to see continued deep pools of capital from all over the globe, especially China and Japan. The world’s largest pension fund, Japan’s Government Pension Investment Fund, is increasing its foreign equity allocation from 12 to 25 per cent and many Chinese investors are also increasingly mandated to invest offshore.

“For 2015, investors should look at the global gateway cities that are attracting both capital and growth such as London, San Francisco and New York. In an improving economic environment, investors should also be looking for economically-sensitive exposure with high growth such as the lodging and hotels sectors. Japanese developers are also an interesting proposition as they continue to recycle capital through their business amongst the back drop of rising asset values, rental growth and occupancy and falling capitalisation rates.”

Key trends for 2015: direct real estate

AMP Capital Head of Real Estate Capital Tim Nation said: “The fundamentals for office and retail markets in Australia are looking more positive than 12 months ago with the Sydney and Melbourne office markets having seemingly bottomed and green shoots now evident, and retail sales improving nationally. While yields are not expected to revert to pre-Global Financial Crisis levels, we believe there will be further yield compression in 2015.  The majority of total returns can be delivered via income and so while cap rates are fluid, a long lease to a strong covenant with fixed annual rental increases remains an attractive cornerstone in a diversified portfolio.

“We believe there is still relative value in the industrial sector where risk can still be priced, particularly for assets poised to benefit most from the huge infrastructure investment program currently underway on Australia’s east coast. For both offices and shopping centres, creating ‘places’ that people want to visit will be increasingly important for the real estate market in 2015 and beyond.  Office buildings must provide a flexible working environment and a wide range of amenities and shopping centres must create experiences that cannot be commoditised or replicated on the internet.”

Key trends for 2015: listed infrastructure

AMP Capital Head of Global Listed Infrastructure Tim Humphreys said: “US growth and its impact on interest rates will have the biggest effect in 2015. Rising interest rates should be an indicator of economic activity picking up, which in turn increases the demand for infrastructure. The US has experienced a rapid increase in natural gas and oil production from shale deposits and is the now the largest producer of petroleum and natural gas in the world. We expect these trends will require vast amounts to be spent on infrastructure, approximately $35 billion during the next 12 months alone.

“US energy infrastructure, specifically pipelines and other assets that have long-term secure contracts, offer a safe way to play the increased production of oil and gas in the US and Canada and offer the upside without the sensitivity of a direct exposure to the oil or gas price. Quality and diversification remain key fundamentals for 2015. High-quality companies have better managements and better assets and as a result they outperform over the longer term. Investors should focus on diversifying across regions and stocks. By looking globally, you have a much bigger pond to fish in.”

Key trends for 2015: direct infrastructure

AMP Capital Global Head of Infrastructure Equity Boe Pahari said: “Around the world, we continue to see direct infrastructure investment focused on utilities and other cash-yielding assets in 2015. In Australia, ports will also be strong while in the US, the power and midstream energy infrastructure sectors are likely to attract a lot of interest driven by excess gas supply and improving economic conditions. In Europe, airports and telecommunications infrastructure are expected to be hotspots of activity and we expect to see both increasing deal flow and greater investor confidence in countries such as Spain, Portugal, Italy and Greece.

“We’re expecting deal flow to be particularly strong in Australia, driven by the asset sale programs flagged by the New South Wales and Queensland state governments, and the US, particularly in the energy and utilities sector as well as in secondary markets. Europe, however, will likely have significant capital flows chasing relatively limited deal flow particularly for large-scale ‘trophy’ assets. We believe mid-market assets, which represent the biggest market, to offer the greatest opportunity for bilateral or negotiated sales processes and best relative value for investors.”

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