Living sectors are the new targets for yield-seeking investors and developers

Investors and developers are eyeing the living sectors, an emerging group of residential real estate products, to place their capital. The sectors encompass real estate where people live throughout their life stages: student housing, co-living, multifamily, senior living and aged care.

JLL’s latest report uncovers how rapid urbanization is shifting how and where people live. But, dwellers’ acceptance of the shared-economy is making the living sectors a successful alternative to traditional housing. This consistent demand is catching the eye of investors.

“We’re seeing rising investor interest in the living sectors across major Asia Pacific cities because the demand for affordable, alternative housing options is intensifying,” says Rohit Hemnani, COO and Head of Alternatives, Capital Markets, JLL Asia Pacific. “Investors in search of stronger yields, portfolio diversity and long-term holds should hedge their bets on these sectors now.”

JLL’s report found that investors can generate more consistent yields in the living sectors due to the non-discretionary nature of the asset classes. Top early opportunities identified for investors willing to venture out onto the risk spectrum and capitalize on healthy spreads include:

• With Mumbai’s student housing benefiting from more than 34 million tertiary students across the country, the demand for this space is there. India’s relatively untapped and in need of capital to gain traction and is expected to command yields between 10 and 12 percent*.
• Aged care and senior living spaces are more culturally accepted in Australia than elsewhere in Asia. Due to higher life expectancy and more single-person elderly households, the need for these units is likely to continue to push development demand. Sydney is a growth market with yield estimates between 6 and 8 percent*.
• Multifamily, an en-bloc apartment building, is one of the most stable sectors. The proportion of renters to home owners is expected to rise as house prices across major Asia Pacific markets have outpaced rents. Tokyo remains a top target for investors looking to get into a large, liquid market early with deal flow and favorable financing arrangements. The yield estimates between 3.5 and 4.5 percent and the sector has very strong downside risk protection, and investors can achieve scale through portfolios.
• Co-living is in its infancy in Indonesia but as with other emerging asset classes, developed markets such as Hong Kong and Singapore are typically the front runners in terms of growth. This was the case with the co-working and modern logistics warehouse markets where growth in Indonesia only happened relatively recently. Indonesia’s huge, young population and rapid urbanisation form the backdrop to demand growth for residential formats such as co-living.

James Taylor, Head of Research, JLL Indonesia says “Kos kosans, rented rooms of varying price and quality, with shared facilities are a well-established concept in Indonesia so co-living would not be a great leap from a residential format familiar to Indonesians“

Upcoming mass transit projects also present an opportunity for co-living operators. The MRT is due to become operational in March and the LRT later in the year. Investors are increasingly interested in Transit Oriented Developments (TODs) with some exploring the possibility of co-living operations at these strategic transport hubs.

“The LRT in particular is likely provide convenient access to Greater Jakarta locations that historically have been held back due to traffic congestion and long travel times to and from core areas of the city.” concluded Mr Taylor. “Reduced commuting times are likely to increase the liveability of these locations and we expect investors to respond with various residential offerings.”

For more information, please download “The Living Sectors” report.

* All yields are JLL estimates *