Glyn Nelson from global real estate manager AEW explains the drivers behind tech companies’ post-pandemic real estate choices in APAC
The New Economy is made up of high-growth industries that use innovative technologies and will be the driving force for future growth and productivity. The recent pandemic recession showed how resilient the sector is, growing more than 3% during 2020 and 2021 while the rest of the economy contracted. In the decade ending 2030, activity in the New Economy will expand by 29%, far outpacing overall economic growth. And it will be people that deliver this progress. By one estimate, there will be more than two million net new jobs created in this sector across the advanced APAC markets. As the New Economy expands, it will drive up the need for commercial real estate space.
A new lease of life
New technology occupiers could account for up to a quarter of office leasing demand through to 2025. This will reinforce occupier interest for downtown, metro, and business park locations. Technology firms have a strong focus on their employees and operate in a competitive labor market, often described as a war for talent. Their real estate decisions reflect this. Not only do they look at the physical and financial attributes of premises, including wellness, healthy building features, and ESG and sustainability metrics, tech firms also look at surrounding amenities such as proximity to favored dining options and public transport access as well as supporting ecosystems of like-minded organizations.
Everleigh, Sydney is an example of an up-and-coming technology and innovation hub. It is attractive to large and small firms including start-ups, which are often the driver of pioneering progress. Similarly, Pangyo Techno Valley, Korea’s Silicon Valley, is an innovation and R&D hub. Having grown to critical mass in just a few years, its success spawned follow-on second and third phases. Pangyo has expanded from ICT and biotech research to creative industries and now semi-conductor development, making a significant contribution to economic growth.
Healthcare and life science are other key areas of the New Economy. APAC’s aging demographics and longer life expectancy are combining with higher incomes and wealth generation to increase demand for healthcare services, as well as pharmaceuticals and medical devices – among others. Governments are introducing policies to encourage research, development, and production. A knock-on effect from pandemic-related innovation is more work being done in preventive healthcare, which further drives demand in this sector.
Stand-out locations
Markets such as Singapore stand out because they are both ideal locations to establish regional headquarters, and also have top local research institutes with world-class laboratories and associated spin-offs. Indeed, eight of the top 10 global pharmaceutical firms have operations in Singapore. Healthcare and life science provide opportunities to access the sector through a range of property types from corporate offices, logistics facilities, research and development (R&D) laboratories to manufacturing facilities.
The New Economy is going to feature increasingly in real estate markets. As developers work with occupiers to expand their footprint, standing asset liquidity will improve. Significantly, the sector provides an opportunity to diversify the demand base, improving risk-adjusted returns.
About
Glyn Nelson is Managing Director and Head of Research and Strategy with responsibility for directing AEW’s research activities in Asia Pacific. He is a member of the AEW Asia Investment Committee, Risk Management Committee, and a member of the Global Securities Allocation Committee. Glyn’s responsibilities include monitoring, evaluating, and forecasting the macroeconomic environment, demographic trends, and capital market conditions across the region.