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8 key highlights and trends that will shape private equity real estate in 2022

We recently hosted a hybrid roundtable event featuring panellists from Alyssa Partners, JLL and Colliers, moderated by QIP's Head of Sales, Alex Bellingham. The discussion covered several topics and observations followed by a short Q&A session with invited media in attendance.

Peter Young, Co-Founder and CEO of Q Investment Partners
Regina Lim, APAC Head of Capital Markets Research, JLL
Paddy Allen, Head of Operational Capital Markets, Colliers
Chedli Boujellabia, Founder and Managing Partner, Alyssa Partners

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In reflection, we have outlined eight key themes in the global PERE space and had welcomed perspectives on how these various stakeholders see the market outlook for 2022:

1. Private Equity Residential Real Estate Markets as a hedge against Covid-19 volatility

While changing consumer spending habits, market volatility and tech-related disruptions led to other assets suffering, residential living has remained defensive throughout 2021. As noted by Peter Young, CEO and co-founder of QIP, the solid fundamentals behind residential living assets has safeguarded against disruptions, driven by the simple factor that people will always need a bed to sleep in and a home to live in. In 2022, this trend is expected to remain.

Private Equity Singapore

2. Ever-evolving nature of how people live, work and play

As residential living is now a multi-purpose asset, investors will need to be intelligent when considering market opportunities for 2022. The past 24 months has seen a shift in the definition of ‘residential living’, noted by Chedli Boujellabia, Managing Partner and CEO at Alyssa Partners. Driven by the blurring of boundaries between work and home, investors and developers in the housing market are cautioned to remain agile and adaptable to deliver what end tenants require most. Referencing Japan as an example, Boujellabia cites that investments into multi-family housing will continue to deliver low volatility at attractive risk-adjusted returns, making it a must-have asset class in any private or institutional investor’s portfolio.

3. Growth in investor allocation to institutional-grade residential housing

Institutional grade residential housing remains significantly underweight for many institutional investors. Many are seeking long-term, risk-adjusted assets to meet their needs, and therefore will continue to pivot to investment opportunities in institutional-grade residential housing. Once viewed as a risk several years ago, the granular income streams associated with this sort of investment are now viewed as an opportunity to mitigate risk, Paddy Allen, Head of Operational Capital Markets at Colliers, voiced. Residential real estate investment also meet various sets of criteria by institutional investors, driving greater allocation. Compelling demand and supply metrics are promoting strong investment opportunities in the space.

4. Focus on country markets with low inflationary risks

As inflation rates are expected to continue rising, 2022 will see a focus on markets such as Japan, which has a lower risk of inflation than others, such as the UK and US. As highlighted by Boujellabia, inflation in Japan has historically been very limited for about 20 years, and that trend is expected to remain for the foreseeable future. While Japan may see a limited impact from global inflation on imported goods, such as petroleum and certain construction materials, all else will be marginally impacted. Japan is the perfect jurisdiction to protect against the inflationary pressures faced by other markets, such as the UK.

Through targeting major regional hubs such as Greater Tokyo, Osaka, Nagoya, Fukuoka and Sendai, achieving portfolio premiums in Japan can be attained with scale and diversification. Economic and population growth under nationwide political stability continues to be observed in these areas.

5. Increase in demand for ESG-compliant products and protocols

Residential real estate assets naturally satisfy a lot of ESG parameters, Allen comments. As investors become more selective via responsible capital allocation, there will be more emphasis on choosing projects that are greener, more energy-efficient, and built using more sustainable methods of construction. On top of this, the clear social need for good quality, affordable and accessible residential accommodation means that investment into the sector will also have a favourable impact toward social goals – something that institutional investors are actively looking to address in 2022 and beyond.

Private Equity Singapore

6. Increase spotlight on digitisation and tokenisation of real estate assets

The digitalisation and tokenisation of real estate assets is set to drive the next wave of growth in the PropTech sector, coming off the back of a bumper year for PropTech investment. As cited by Allen, technology is increasingly becoming intertwined into the fibre of our daily lives, and how we interact with our properties is becoming increasingly digitised. Innovations aimed at increasing transparency around energy performance, streamlining management and allowing residents to manage their homes on a day-to-day basis will become increasingly popular across the sector for 2022.

Technological advances are also bringing the sector closer to investors, with new platforms being created to allow fractional ownership of property. This enables investors to take a slice of the debt secured against a property investment. Smaller investors can benefit through such alternative investment, accessing high quality and professionally managed assets, continuing to diversify their portfolios with such lowered barriers to entry.

7. Emergence of clear winners within real estate market subsets

Real estate market subsets such as residential, logistics, student accommodation and data centres are emerging as reliable and defensible assets throughout 2022, and new verticals are also expected to rise in popularity.

Regina Lim, Head of Capital Markets Research at JLL (Jones Lang Lasalle), mentions that some sectors have performed particularly well throughout the pandemic, and real estate investments in these sectors have recovered quickly to or beyond pre-COVID levels. These include income-resilient assets such as logistics, rental residential and more. Momentum is expected to pick up further in 2022 as investors seek to increase their exposure to defensive assets, improving portfolio diversification.

Student accommodation

8. Specialist residential housing investment will secure long term capital enhancement value

Through more listed vehicle and public listings in 2022, specialist real estate investments, especially residential housing investments will secure long-term capital enhancement value, notes Young. He cites that there is a growing appetite for specialist residential housing investments with solid, risk-adjusted returns. The availability of suitable investment opportunities remain relatively low, hence while the public markets remain liquid, specialist residential housing projects will be able to raise significant capital for compelling opportunities via public listings.


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