Managing Director, Head of Real Estate Asia Pacific
Q: When you look across the various sectors of the real estate market, is there one in particular that presents the most opportunity?
A: We have been attempting to diversify in, or to enter, what we call the alternative sectors. Those generally include logistics, data centres, life science and co-living. We believe these are sectors that will benefit from longer-term structural changes in Asia. We entered logistics early and have had considerable success. We are trying to pick through the other sectors — not just this year, but at least the next few years.
Q: How does de-globalization factor into that?
A: We are seeing a China-plus-one policy playing out. That means enterprises in China, such as manufacturers, will retain their plants in China but will establish their next plant somewhere else. Southeast Asia, in particular Vietnam and Indonesia, are key beneficiaries of that. This China-plus-one policy has also led to increased intra-Asian trade. From the real-estate perspective, we have seen more players entering those countries in the last two or three years. We have been in Indonesia for six years now — mainly in logistics — and we’ve been researching Vietnam to determine its attractiveness for CPP Investments.
Q: CPP Investments has teamed up with Mitsui on data centres in Japan; why is that country particularly attractive for this type of real estate?
A: I think it’s because of the size of the market, with a population of more than 100 million people, and it’s a very rich economy that will continue to generate demand for data storage. As well, acquiring land with power supply for data centres in Japan is a challenging task and presents a high barrier to entry. What also makes Japan interesting is that a lot of trans-Pacific cables converge there; the ideal locations for data centres are cities with high connectivity to the rest of the world.
Q: Climate change and tech disruption are two of the Institute’s thematic priorities; how would you describe their impact on the real estate sector?
A: To some degree, they overlap.
The impact of technology on real estate started quite some time ago. The most obvious example is how e-commerce totally disrupted the way shopping centres function. The flip side of disruption for shopping malls is that it leads to the growth of modern logistics; we were early investors in logistics in Asia, which is now the largest sector in our portfolio. So, we have been a great beneficiary of that.
Technology has also disrupted the office market, especially through the COVID-19 pandemic as working from home became common. That led to a re-calculation of the true demand for office space going forward, and it also led to new workspace requirements. So, tech disruption has changed nearly every sector of the real estate market; it’s evolving and it is a key evaluation criteria for us when we look at new investments.
Climate change is arguably much more complex than technology. It is top of mind, and the list of challenges is really, really long. Tackling climate change requires the collaboration of all stakeholders – investors, landlords, tenants, builders, valuers, regulators, governments and so forth.
I think, for us, the first thing is data collection — we need a set of reliable data to help us understand how big the issue is for every single asset before we even attempt a solution. Today, Asia is lagging a bit behind in this respect, but it’s catching up. Fortunately for us, our commercial partners are primarily in Australia, and they are at the forefront of this issue.
And in CPP Investments’ Real Estate department, we have a dedicated committee working together with our Sustainable Investing unit to help us understand this complexity and ensuring that we maintain consistency around the world on this issue.
Q: In China, there has been concern about developers’ debt levels. How has CPP Investments navigated that, and how has diversification helped?
A: We have not been affected by the recent Chinese developer debt issues. We met with numerous Chinese developers over the years but have only entered into partnership with one, which is Longfor. It is recognized by the market as one of the best-managed Chinese developers and it has not defaulted on any of its bonds nor encountered any debt repayment difficulties. In fact, it has been taking advantage of the current weakness in the Chinese market to expand its land bank.
The other partners we have in China are foreign companies with a long presence in that country, such as the Goodman Group from Australia and Capitaland from Singapore. These are companies with strong balance sheets, best-in-class corporate governance and have been isolated from the recent Chinese developers debt debacle. Our stringent partner-selection process and having a judicious balance of local and foreign players in China has served us well.