Why is asset repurposing on the radar?

The real estate industry has been undergoing waves of disruption in recent years. Across multiple sectors, we see new technologies, geopolitical development and economic trends begin to alter the way real estate is demanded for, constructed, and transacted in the market.

The COVID-19 pandemic has only accelerated many of these shifts and made more urgent the need for players in real estate to react and adapt. Asset repurposing is one of the ways in which existing asset owners may do so, and we are seeing increased interest in it due to these disruptions.

Retail and bricks & mortar 

The office sector has been impacted by the rise of hybrid working models during the COVID-19 pandemic, altering the workplace strategies of many occupiers. Consequently, landlords in some markets in the Asia-Pacific region may experience downward pressures on rents and occupancy, particularly for the non-prime office assets.

Brick-and-mortar retail faces pressures from e-commerce growth in most markets, as internet penetration and online retail sales growth continue to outpace retail performances. The hospitality sector has been facing a drought of tourism since the pandemic and is also dealing with the uncertainty of when international borders are going to open back up for good.

New opportunities 

In these cases, there may exist opportunities to repurpose assets from these struggling sectors to other booming asset classes.

Industrial logistics is an obvious winner, with burgeoning e-commerce growth and a shift in consumption habits due to demographic changes. The pandemic has also put an emphasis on the life science industry, globally and in Asia-Pacific, and we will see demand for life science compatible industrial and business park assets continue to grow in the coming years.

Lastly, prime office assets are still performing well across the region, and with occupiers now undertaking right-sizing and flight-to-quality, there exist opportunities to convert from other asset classes to prime office spaces if the location is right.

ESG

The rising importance of Environmental, Social and Governance (ESG) in today’s context is also shifting real estate needs. Rising concerns over climate change has prompted action from all players in the industry. Investors are beginning to demand more sustainable buildings, not only because of pressures from governments and authorities, but it also makes financial sense considering sustainable buildings tend to save on upkeep and cost of operations.

With sustainability being big focus for many, along with the drive to reduce downtime, repurposing is preferable to demolition works for both environmental and economic reasons.

Repurposing non-ESG compliant stock also leads to the development of more mixed-use assets, which has the benefits for providing both a better live-work environment and unlocking properties’ unrealised potential by switching to sectors that have a better long-term growth prospect.

In Asia-Pacific, Repurposing is now on the Radar. Click here to read our report on it.