For years, buying some of the largest commercial real estate buildings in Asia Pacific (APAC) was the standard route into the sector for many investors.

But as more capital flows into real estate, competition for core assets has intensified. It’s made finding those prized deals much more challenging.

“The majority of investible stock, especially in the office sector, is currently owned by real estate operating companies and large-sized corporates that typically hold assets for the long term,” says Sungmin Park, Director, Asia Pacific Capital Markets Research, JLL.

As a result, investors have become more willing to consider taking a slice of ownership.

Partial-stake deal volumes in Asia Pacific hit $52 billion between 2021 and 2022, up from a total of $48 billion in the two years prior, according to data from Real Capital Analytics (RCA).

The momentum has carried over into this year. Real estate investment manager ARA divested 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 deals were seldom pursued by investors, who preferred full ownership to manage assets at their discretion. “But with core asset opportunities few and far between, these deals are emerging as an attractive alternative for investors to co-own a core asset which might otherwise not be available for sale,” Park says.

It’s not just investors getting more comfortable with sharing. Owners, too, have been changing tack amid efforts to refocus their portfolios towards new developments.

“We see a greater willingness among owners to divest a partial stake in their assets as they seek to realise capital appreciation from rising property values over the years,” says Park. “Many owners are also rationalising their real estate portfolio as an attempt to divert capital into other growing businesses or new development opportunities.”

But while securing a partial stake brings stable cash flow and improved risk management to assets that they might not otherwise have been able to pursue independently, investors have to weigh implications before entering such deals.

The lack of control over key decisions, for instance, could be a major deterrent. “Depending on the size of the partial stake, decision-making on renovations or leasing is often a shared responsibility with the co-owners of the asset,” says Park.

“A partial stake won’t make sense for value-add investors looking to enhance or repurpose an asset — a decision which would require a full or majority ownership.”

Investors with a partial stake may also struggle to dispose of assets in the future if potential buyers are seeking full ownership, Park adds.

As the size of capital chasing core assets grows, Park believes the supply will only tighten as opportunities dwindle.

“We expect to see more investors eventually soften their stance on ownership and explore partial-stake deals to edge out the competition for these in-demand assets.”