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Continued soft inflation and employment data in the US has changed market leadership as expectations for several Federal Reserve Fed Fund rate cuts has led to a strong rotation from large cap tech into lagging sectors including REITs which are seen as beneficiaries of lower rates. The FTSE EPRA Nareit Asia USD Dev Net TR rose 6.34% in July. Our active markets:

  • Japan, +9.5%: BoJ Governor Ueda raised short term rates, press conference was hawkish and confusing. Created a lot of volatility to this day. JREITs, have performed much better relatively and are up in USD terms since the move. Bank stocks, beneficiaries of higher rates moved up initially after Ueda’s comments, but then lost almost 25% in two days as rate expectations have changed with global macro conditions continuing to moderate
  • Australia, +3.8%:  The RBA announced no change to policy rate in its August 6 meeting and pushed back on expectations for a near-term OCR cut given persistently high inflation caused by high labour costs. We expect Goodman Group to show solid results including decent guidance due to strong contribution from its growing Data Center developments. We will probably increase our underweight should earnings be well received next week
  • Hong Kong, +1.5%: Expectations going into results are extremely low especially after Hang Lung Properties’ DPS cut by 1/3rd due to weak sales particularly in China. We attended Link REIT’s HK and Shenzhen asset tour (separate note) and noticed weak attendance from buyside firms as interest in the market is at extremely low levels despite cheap valuations
  • Singapore, +6.2%:  SREIT results were in line with expectations and dividend growth has been stunted by higher interest costs. Given the outlook for rates globally, rates in Singapore will follow as the MAS does not set interest rate policy directly.

Bottom line: REITs have been trading up since the US CPI print on July 11 on the back of a reset in rates expectations and decent earnings.

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Conservation shophouses have emerged as one of the top alternative real estate asset class over the past decade in Singapore. Besides their finite supply and vintage charm, they are among the few asset classes in Singapore that allow foreigners and companies to own boutique buildings at a palatable quantum.

Transaction volumes hit a peak of $1.9 bn in 2021 before declining on high financing costs, record price points and most recently, overhang from the $3 bn money laundering case. CBRE Research believes the underlying fundamentals for shophouses remain solid, notwithstanding certain challenges in the near term.

This report looks at the past, present and future for conservation shophouses, and recommends actionable strategies for investors.

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Recent rapid interest rate hikes have tempered economic expansion, yet growth remains resilient throughout the region.

As a result of interest rate hikes, commercial real estate investment in Asia Pacific has declined 40%, though recent data has shown stabilisation and some sectors moving off from their investment low-point.

LOOKING FORWARD

Anticipate upcoming interest rate cuts, although their pace and scale will vary across different markets, which will support accelerating investment transaction activity.

There is significant capital waiting to be deployed. Accordingly, opportunities exist along the risk curve and for different investment styles for astute investors. Secular megatrends will drive growth in Alternative and “through the cycle” asset classes.

While we advise investors to be mindful of government and household debt levels and keep an eye on any significant unwinding of labour markets, history tells us that the time to act is now.

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CBRE’s 2024 Asia Pacific Real Estate Market Outlook Mid-Year Review examines the predictions we made at the beginning of 2024, and reveals our outlook for the rest of the year.

Our original forecasts from January were largely correct, although the prolonging of expected interest rate cuts has delayed a recovery in investment activity. CBRE has therefore slightly revised down its full-year investment volume forecast to an increase of 0% to 3%.

CBRE retains its forecasted full-year gross office leasing volume at 0 to 5% growth on the back of solid upgrade demand and flight to green relocation, while retail expansionary demand remains resilient, as expected. Conversely, logistics demand normalised faster than expected as occupiers retain a preference for renewals over relocations due to high rents and fit-out costs.

This report explores the key trends and forecasts that will shape Asia Pacific’s commercial real estate market for the rest of 2024 and beyond.

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Knight Frank’s Asia-Pacific Horizon: Look Beyond the Norm report uncovers emerging investment momentum and identifies top investment destinations, with private capital playing a crucial role.

Key highlights:

  • Major trends driving real estate investments in APAC
  • Projected impact of rate cuts on investments
  • Deal flows in APAC signal recovery in H224
  • 2024 is a great vintage for offices in Australia and Hong Kong
  • Spotlight on Australia, Japan, Singapore, South Korea and Hong Kong SAR
  • A return to inflation fires up Japanese real estate
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This in-depth report offers a comprehensive analysis of the five largest REIT markets in Asia: Japan; Singapore; Hong Kong, China (“Hong Kong”); the Chinese mainland; and India.

Key Highlights:

  • In 2023, the India REIT market saw the steepest rise in total market value, up 31% year-on-year.
  • Singapore’s REIT market expanded by 4%, with an average total return of 7.0%.
  • Combined value of the Asia REIT market stood at US$252 billion, dominated by Japan, Singapore, and Hong Kong.
  • The industrial / logistics and multifamily REITs, displayed superior risk resilience, while data center and healthcare sectors continued strong performance.
  • New policy initiatives in the Chinese mainland led to the issuance of seven new REIT products in the first four months of 2024.
  • India’s combined office REITs portfolio is projected to reach 180 million sq ft by 2025, with Nexus Select Trust planning to double its portfolio size over the next five years.
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The beginning of this year saw occupiers in Australia exhibit a more cautious approach due to the sharp rental increases witnessed over the past two years and an increase in new supply. However, demand has picked up in Q2 2024 and the number of transactions is set to increase over the next three to six months.​

In Japan, logistics demand is holding firm in regional cities. After putting expansion plans on hold six months ago, many occupiers are now moving ahead with leasing new space. However, rising vacancy is prompting landlords to fill space as soon as possible to tenants from any sector.​

Sentiment in Vietnam remains positive, backed by the government’s success in boosting the country’s ties with key trading partners, which continues to lure manufacturers from these countries to set up production bases. Factory space continues to attract strong demand, led by the electronics and automotive sectors along with traditional commodities.​

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Despite the current subdued mood in mainland China, optimism is building for an eventual recovery. Several major brands have been seen seeking opportunities to optimise store networks in what is still a tenant-favoured market. Many retailers are looking to operate in a network emphasising one major flagship store per city.

Korea continues to witness a solid rebound in international visitor arrivals, which is driving up consumption and leasing demand. More demand for pop-up stores has been observed in emerging commercial districts including Seongsu, Hannam, and Dosan Park due to tight availability.

Vietnam continues to attract strong interest from foreign brands, particularly those from mainland China. More shopping malls are undergoing renovations to create space for new market entrants and provide a more memorable experience for shoppers by utilising new designs such as bigger atriums.

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Mixed signs of economic recovery in mainland China weighed on investment activity this quarter. Transactions mainly focused on small lump sum assets, the bulk of which were sized at between RMB 100-500 million. Discounted assets, especially in the retail and office sectors, are expected to drive investment in the coming months.

Investment sentiment in Singapore is less negative compared to six months ago, with value-add capital turning more active since the turn of the year. Retail and hospitality properties are expected to offer more opportunities in the coming months, underpinned by solid fundamentals.

India’s investment market continues to see buoyant activity. Strong consumption is translating to solid fundamentals in the retail sector, boosting investor interest. Investment demand in the office sector has also picked up over the past six months, with domestic office funds and Singaporean capital being most active.

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Stay ahead of the curve with APREA’s exclusive monthly update tracking the performance of China REITs.

APREA C-REITs Roundup provides the latest info and developments in C-REITs. Available for APREA members only, this important resource is your key to navigating the landscape of C-REITs.

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