Investors increasingly looking for Co-living, Data Centres & Car Parks due to strong fundamentals
Potential higher returns compared to traditional investment properties
HONG KONG, 28 January 2019 – Co-living, data centres and car parks are the top three alternative asset classes that have the best investment fundamentals in Hong Kong, according to JLL's Alternative Investments in Hong Kong: A Shift Towards Diversification released today.
Denis Ma, Head of Research at JLL, said: "Capital values of traditional real estate sectors such as residential, office, retail and industrial have grown significantly since the 2008 Global Financial Crisis. At the same time, real estate yields have tightened to historically low levels across most sectors. Consequently, it is becoming increasingly difficult for investors to generate decent returns from traditional property assets. We have witnessed an uptick of interest in alternatives, where investors can achieve potentially 50-75 basis points higher yields compared to established real estate sectors.
The report has studied the investment potential of co-living, senior housing and aged care, data centres, self storage, education, car parks. Overall, co-living, data centres and car parks are the top three alternative investment options in Hong Kong.
Hong Kong Government projections suggest that in the 2018/19 academic year, there will be a shortfall of 13,600 student hostel places in Hong Kong. Co-living can take advantage of insufficient supply of student accommodation in the short-term and also potential for young professionals to embrace this type of living arrangement.
A survey of 18-25 year olds in Hong Kong conducted by the Urban Research Group at the City University of Hong Kong, found that 82% of respondents were living with either their own parents or their partner's parents. Rental affordability is a major driver of this trend, with a typical young professional having to pay up to 80% of their monthly salary if they want to rent in the private market. Co-living can provide an affordable alternative with shared rooms starting at just HKD 3,000 per month.
Hong Kong also has a large proportion of transient non-local professionals who come for both short-term and long-term work contracts. Co-living and student accommodation is appealing to these expatriates as it provides them with a community to meet people in a new city without the need to commit to a long-term lease.
The demand drivers of the Hong Kong data centre market will be strong for the foreseeable future. According to research firm IDC, global data creation is forecast to grow by an average of 26% per year from 2017 to 2025. This means that the total data stored will double every three years. Trends in entertainment, such as video streaming services, online gaming and social media are obvious demand drivers for higher data storage and processing.
Hong Kong has intrinsic advantages as a data centre hub as the city is not exposed to major natural disasters such as earthquakes, which is an important consideration for the provision of a stable operational environment. The city also has an exceptional telecommunication network with 12 submarine cable networks connecting to other countries (outside of China) and has an additional five proposed to be delivered by 2020.
However, the lack of land is an issue for Hong Kong for the expansion of the sector.
The Hong Kong government has used car parks as a way to minimize private vehicle ownership. The city's total private car parking has increased 9% from 613,000 to 668,000 spaces from 2007 to 2017. However, the number of licensed private vehicles has increased by 48% from 409,000 to 606,000. The shortage of car parking spaces has supported the pricing of car parks over the last few years. The market recorded a number of record-breaking transactions in recent years.
Since the government is unlikely to change its policy towards the supply of car parking, it will support the prices and the growth potential of car parks.
Ma said: "Longer term secular trends are responsible for the demand drivers of some of these sectors, such as an imbalance between the growing demand for private cars, increasing trend for non-local professionals working in Hong Kong on a contract basis, and increased digitisation of the global economy. Therefore, we believe that interest in alternative investments will continue to grow as investors look to diversify their portfolios."
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of over 90,000 as of December 31, 2018. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com