Cohen & Steers Inc., a top-performing US asset manager, expects the Asia-Pacific real estate market, especially listed properties, and the world’s utility sector to provide investors with healthy returns amid the global economic slowdown caused by Washington’s tariffs.
The outlook for the retail market in Hong Kong, the office and healthcare sectors in Singapore, and the residential markets in Australia, South Korea and Japan, is bright, Cohen & Steers President & Chief Investment Officer Jon Cheigh told The Korea Economic Daily on Aug. 7.
“Over the last two years, US markets beat most markets, but my expectation is over the next five or 10 years we will probably see a reversal where we will probably see less investment gains out of the US and probably more investment gains in other places, such as Asia,” Cheigh said during the interview in Seoul.
“That's just the starting point of valuation. It's more attractive outside the US.”
Cohen & Steers, specializing in real assets and alternative income, manages $88.6 billion in assets as of July 31, up 4.7% from a year earlier. It manages approximately $14.7 billion on behalf of APAC clients based in countries like Japan, Taiwan, South Korea, Singapore, Malaysia, New Zealand, and Australia.
Cohen & Steers was one of the first investment managers focused on listed real estate. Over time, it expanded into listed infrastructure, natural resource equities, commodities, and preferred securities.
Singapore skyline with skyscrapers (Courtesy of Getty Images) HONG KONG, SINGAPORE
Cheigh said real estate markets in Hong Kong and Singapore are attractive.
“Places like Hong Kong and Singapore have been negatively impacted by China's slowdown over the last five to six years. Their valuations are very attractive, and then we're starting to see stabilization at the beginning of a recovery,” said, Cheigh, who was appointed Cohen & Steers’ president in January.
Beijing introduced various stimulus measures, including a significant increase in government spending, to revive the world’s second-largest economy. This will support the Hong Kong retail real estate and the Singaporean office and healthcare sectors, Cheigh said.
“I don't think China is going back to 6-8% economic growth. But a rebalancing and stimulus cycle will have a positive impact on places like Hong Kong and Singapore,” said the investment veteran.
SOUTH KOREA, JAPAN, AUSTRALIA
Cheigh said South Korea’s office market is very healthy, adding, “It is one of the best markets globally.”
"This policy will attract more global investment and encourage continued investment. That's an important step in getting investors, like us, more interested in Korea over time,“ said Cheigh, a Korean American.
Yeouido in Seoul, the financial center of South Korea (File photo by Bum-June Kim) Cohen & Steers likes hotels and offices in Tokyo, given the low interest rates in Japan.
The Bank of Japan raised its policy interest rate to 0.5% in January, the highest since 2008, and has maintained it at that level.
“It's a rare developed market where the Bank of Japan kept rates very low. We like it from a growth standpoint,” Cheigh said.
Australia’s residential sector is also a bright market due to tight supply, he said.
“There is a need for more housing. We own a couple of companies there that benefit from increased residential development and condo sales.”
The Reserve Bank of Australia on Aug. 12 cut its benchmark lending rate to 3.60% after lowering it in February and May, while the US Federal Reserve left rates unchanged at 4.25-4.50% at their meeting in late July.
The rate differentials are likely to put pressure on the Australian dollar and attract overseas investment, Cheigh said.
“The Australian dollar is cheap now because they're reducing interest rates, which makes it really attractive for overseas investors versus US interest rates.”
Cell tower in Needham, Massachusetts, invested in by Cohen & Steers' REITs (File photo by Cohen & Steers) UTILITIES
Cheigh said the global utility sector is expected to benefit as the artificial intelligence (AI) industry is booming and most countries are moving to electrify and away from oil and gas.
“Most utility companies globally are seeing much higher demand than they historically had,” Cheigh said.
Electricity demand in the US, which had grown by nearly 5% annually in the 1970s, has seen less than 1% annual growth over the last two decades, for example, Cheigh said.
Demand growth in the world’s top economy is predicted to move back up to the 3-4% range per year between now and 2030, he said.
“That is good from a volume standpoint. But it's also good because when you have that kind of demand growth, it requires more investment, which tends to have a positive return to it.”
Investments in infrastructure are attractive amid the global economic downturn, Cheigh said.
Infrastructure is well-positioned to benefit from higher interest rates, persistent inflation, and slower economic growth – conditions that historically support infrastructure returns, according to Cohen & Steers.
“It's not very high beta demand. It's quite consistent from a demand standpoint. During an economic slowdown, do we use less water and electricity? Yes, but only a little bit,” Cheigh said.
“Even in a slower economic environment or even in recessions, infrastructure tends to hold up better. It tends to see much less downside in market corrections.”
Data center in Osaka, Japan, owned by Digital Reality (File photo by Cohen & Steers) WEAKER ECONOMY, HIGH INFLATION
The global economic slowdown, stemming from US President Donald Trump’s tariffs, has dampened trade-related real estate such as warehouses, airports, marine ports, Cheigh said.
“For example, Los Angeles or other Southern California warehouses, which are very reliant on imports from Asia, are very negatively impacted,” he said.
Despite the economic downturn, the Fed is unlikely to cut borrowing costs aggressively as inflation stayed higher than before, Cheigh said.
Fed Chair Jerome Powell on Aug. 22 signaled a possible interest rate cut at the US central bank's September meeting, saying that risks to the job market were rising, although he noted inflation remained a threat.
The Fed has been reluctant to lower the rate despite Trump’s call for cuts as his tariffs were expected to keep inflation high.
Cheigh predicted inflation to remain elevated for the long term, stressing the need to diversify against that risk.
“We had higher inflation in 2022 and 2023. Our view is that that's not just a two-year problem. This is a five- to 10-year problem,” he said. “If inflation stays relatively high, I think the Fed can cut a little bit. But we don't expect significant cuts.”
Such a monetary policy is expected to decrease the supply of new properties but support the rental sector, Cheigh said.
“With high interest rates, you tend to see a reduction in the amount of new supply or new development because construction loans are expensive,” he said. “Less supply creates stronger rental growth.”
Aerial view of a cargo ship being unloaded at the Port of Los Angeles, California (Courtesy of Getty Images) LISTED REAL ESTATE
Many investors, who are mostly exposed to the private side of real assets – real estate and infrastructure, have suffered from the correction without much flexibility amid the global interest rate hike cycle in 2022-2023.
Those investors have invested in the private side of the market with limited liquidity in close-ended structures.
Cheigh advised investors to add listed real assets to their portfolios to improve liquidity.
“Having 20% in listed real assets allows investors not to give up liquidity,” he said.
Listed real assets have historically provided higher returns, Cheigh said.
"In the US, the largest investment market, the return on listed real estate over the past 30 years has outperformed private real estate by 200 basis points per year," he said.
Listed real estate investment trusts (REITs) delivered as much as 10.9% net annual returns from 1998 to 2021, higher than up to 8.6% for private real estate, according to Cohen & Steers.
Listed REITs trade daily, enabling quicker portfolio adjustments and capturing market corrections faster than slower-to-appraise private assets, the asset manager said. This real-time pricing can lead to valuable tactical mispricing opportunities, it added.
Listed real estate provides easier exposure to high-growth niches like data centers, cell towers, single‑family rental portfolios, and healthcare real estate – areas where private investment can be harder to access, Cohen & Steers said.
Listed infrastructure, which has recently underperformed, offers a favorable entry point for investors seeking value, the company said.
Cohen & Steers President & Chief Investment Officer Jon Cheigh (File photo by Cohen & Steers) “Listed is complementary. It's not necessarily a replacement for private assets because it gives the returns, different sectors and added liquidity,” Cheigh said.
“Large investors globally are continuing to adopt more listed ones in combination with their private portfolios.”
Cheigh pledged to leverage Cohen & Steers’ expertise in the listed real asset sector to increase returns for South Korean investors.
"We have delivered strong investment performance for all our investors, and I would like to extend those benefits to investors in Korea. It's important to me on a personal level, too. I'll work with more Korean investors,” he said.
“It is our job, mine and Andrew’s, to help them understand the values the listed real assets can bring to their portfolios and how best Cohen and Steers can do it."
