Investors Embrace Partial-Stake Deals as Core Real Estate Assets Become Scarcen

Growing Competition Spurs Interest in Co-Ownership

Investors in the Asia Pacific (APAC) region are facing a shortage of core real estate assets, leading to a rise in partial-stake deals as an alternative investment approach. Traditionally, purchasing large commercial buildings outright was the norm for many investors entering the sector in APAC. However, the influx of capital into real estate has intensified competition for core assets, making it increasingly challenging to find attractive deals.

Sungmin Park, Director of Asia Pacific Capital Markets Research at JLL, explains that a majority of investible stock, particularly in the office sector, is currently held by real estate operating companies and large corporates with long-term asset holding strategies. As a result, investors have become more open to considering partial ownership.

Data from Real Capital Analytics (RCA) shows that partial-stake deal volumes in the APAC region reached $52 billion between 2021 and 2022, up from $48 billion in the preceding two years. This momentum has continued into this year, with real estate investment manager ARA divesting its half-stake in Singapore's Lazada One building to a fund backed by Japanese conglomerate Sumitomo Mitsui for S$362.4 million ($269.3 million) in March.

In the past, such partial-stake deals were uncommon as investors preferred full ownership to have complete control over their assets. However, with limited opportunities for core assets, these deals have emerged as an attractive alternative for investors to co-own assets that might otherwise not be available for sale.

Owners have also shifted their approach, showing a greater willingness to divest a partial stake in their assets. They seek to realize capital appreciation from rising property values and realign their portfolios toward new developments or other growing businesses.

The office sector is expected to witness the most partial-stake deals due to the intense competition for core office properties, the substantial size of each asset, and the limited supply of investible office properties in APAC. However, other sectors, such as logistics and rental apartments, are also expected to see an increase in supply, broadening the range of investible assets.

While securing a partial stake offers stable cash flow and improved risk management, investors need to consider the implications before entering such deals. The lack of control over key decisions, shared responsibility with co-owners, and potential challenges in future asset disposal are factors to weigh. Value-add investors, for example, may prefer full or majority ownership to have the flexibility for renovations or repurposing.

As the competition for core assets intensifies and opportunities dwindle, Park expects more investors to soften their stance on ownership and explore partial-stake deals to gain an edge in acquiring in-demand assets.