For nearly two years, global real estate markets have been facing significant headwinds, with the “higher for longer” interest rate environment resulting in higher debt costs and the recent pandemic having altered the supply/demand fundamentals.

Amid this turbulent landscape, the dynamics in Asia appear different from the rest of the world, with the region’s positive growth outlook offering opportunities for diversification, a new study finds.

Investing in developed Asia’s real estate sector can help boost risk-adjusted returns and reduce downside volatility for global institutional investors, Hines, a global real estate investment manager, asserts in its Why Asia Now research paper.

“Fundamentals in Asia are pointing in a positive direction,” says Chiang Ling Ng, chief investment officer for Asia at Hines. “Because of the region’s secular growth trends and unique in-market dynamics, we see Asia poised to generate a spectrum of opportunities.”

Real estate investment prospects in Asia include core-plus and value-add opportunities in office, residential, industrial and logistics, and retail, driven by population growth and healthy labour markets in the region. Its real estate also stands to benefit from potentially higher-for-longer inflation, given the historical correlation between inflation and rental growth.

Economies in Asia have also become increasingly self-reliant, intra-regionally driven, and wealthier, with the region projected to grow at double the rate of the United States and Europe annually over the coming years, the study says, citing data from Oxford Economics.

“You can call Asia the ‘growth stock’ in a global real estate market portfolio,” says Tim Jowett, head of research for Asia at Hines. “As the region continues to grow and urbanize, we project its total value and share of investible real estate to also grow, reaching a point where Asia comprises the largest share globally. This will help create tremendous opportunities for investors. So, we’re very optimistic about Asia.”

Based on Hines’ proprietary projections, the total value of investible real estate in Asia is expected to grow from the smallest share relative to the US and Europe (at 30% of the global market, as of end-2023) to the largest share (at 36%) by 2032.

Intra-regional diversification supports a more stable return profile given the meaningful differences in monetary policies, interest rates, and real estate fundamentals across Asia. As a result, individual markets are not highly correlated, allowing investors to benefit from diversification, according to the study.

“With Asia’s diversity comes a deep but complex set of opportunities,” says Ng. “Capturing them requires local expertise to identify the right real estate, access attractive deals, and create value at the individual asset level.”