00:00So, strong investment numbers. How much of this is from a low base, though?
00:04It's not, actually. Actually, the last three years, we've seen consistent momentum and growth in terms of transaction volumes.
00:11To some, it might come as a surprise because you think, wow, there's a lot going on in the macro
00:16environment.
00:17But if you look at the overall just deal-making environment, you think about M&A, you think about venture
00:22capital, you think about the IPO market, there is so much activity.
00:26And part of that is attributed to the fact that there was a lot of dry powder that had been
00:31sitting on the sidelines over the past few years.
00:33With some of the pricing adjustments that have occurred, with some of the events that have played out, you began
00:39to see a lot more confidence in terms of deployment.
00:41Yes, there is the rate environment that is uncertain. But I think investors have been waiting on the sidelines for
00:48long enough.
00:49So, who's spending the most money? Who are the big spenders? And does that driving source continue, I think is
00:55my question.
00:56Yeah, absolutely. So, in the commercial real estate in Asia-Pacific, we are seeing anywhere from pension funds, sovereign wealth
01:02funds, private equity groups are, in particular, very, very active.
01:06You know, you talk about the M&A activity. You see it in the real estate space, too.
01:11You see, take privates of REITs, you see acquisitions of real estate development firms by private equity as well, activists,
01:22investors, unlocking companies that might have assets that sit on the balance sheet that are grossly undervalued because it's not
01:30part of their core business.
01:31And cross-border as well as intra-regional Asia-Pacific capital have all been part of the equation.
01:38And what about AI as part of the equation? Because, I mean, I think JL has been focused on Japan
01:43for quite a bit. But what about China as well?
01:45Yeah, absolutely. So, I think that's the bright spot when it comes to AI.
01:48That's probably the number one question we're getting asked right now when we go see investors is, what is the
01:55impact of AI on commercial real estate demand?
01:58Because there is a big concern about the displacement of the labor force and automation.
02:04So, what we've done is we've looked at three components. One is the augmentation of productivity. Two is basically that
02:12selective displacement that takes place.
02:15But then the third one is the new job creations as a result of the way companies operate.
02:21And we're really beginning to see the net-net of that is that office jobs are going to stay relatively
02:27at the same level.
02:28Are there certain sectors that stand out in terms of, you know, assumptions around the growth of the workforce, for
02:34example?
02:35Yeah. Well, so, IT, unfortunately, that is the sort of sector where we're seeing the most amount of changes, right?
02:43Because there is a lot that can be done by AI that is a lot more efficient.
02:48But then you also need people who have new skill sets that can accommodate, for example, off the back of
02:54AI is the advanced manufacturing boom that's taking place.
02:59And that is, you know, partly supporting the logistics transactions and story that we're seeing, in addition to, of course,
03:08the recreation of the supply chain as a result of tariffs.
03:10Yes. What about how investors are positioning, given the concerns surrounding the Fed?
03:15You alluded to some of this a while ago, but there seems to be less visibility on the interest rate
03:21trajectory.
03:22How is that affecting investor decision making?
03:24Yeah, that when it comes to the underwriting, right, there is a lot of considerations for where ultimately the cost
03:32of debt is going to be or where the bond yield is going to be.
03:35Most real estate investors look at the 10-year as a benchmark.
03:40Yes, you know, when it comes to looking at these factors, there might be scenarios in which you have a
03:47best case, worst case scenario.
03:48But where there is more certainty is we're seeing more hands-on operational beta generation.
03:55So one of the things that we discuss is when it comes to a core strategy, for example, the definition
04:00of that has changed over time.
04:02In the past, when it's an income-generating, stabilized asset, that would be good enough.
04:07But now even the core assets or core strategies would consider improving the operation of an asset, sweating the asset.
04:17It takes a lot more attention and detail.
04:20And I would say that the investors nowadays are a lot more discerning than they were a few years ago.
04:24Sweating the asset. I think that's the first time I've heard that.
04:26So are expectations then for returns, have they been bumped higher at this point in time?
04:32If it was just income before, there's a lot of visibility around what you can get for income.
04:37But help us understand changing expectations.
04:39Sure. So on the capital value side of things, one of the markets here where we're sitting is we're beginning
04:44to see a bottoming out of not just rent growth,
04:48but also in terms of where we're going to see capital value moving forward.
04:52We forecast those for every single market, and there is a healthy amount that takes place.
04:57So even when you have certain elements that are uncertain and yield, whether it's expanding or compressing,
05:05you have enough of the strong fundamentals.
05:08And that strong fundamentals is not just the demand side of the equation, which very much exists,
05:13but the supply, the increasing cost of construction, that is across every single sector.
05:18And we look at the future pipeline of supply for office logistics, retail, there is a significant drop-off.
05:25Second half, this current half, will it be as good as the first?
05:28Just your initial take on what's going on so far?
05:30We do believe this has a bit more time to run in terms of the amount of capital activity taking
05:37place.
05:38A part of it is also looking at the future of capital.
05:41So the creation of some of the pension reforms that are taking place in other parts of the world,
05:47you see large amounts of capital creation or formation,
05:51and those need strategies that deploy into alternatives, which real estate is a big part of.
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