Pandemic restrictions and geopolitical worries did not hold back Asia Pacific real estate investors in 2021, which should mean that any further improvement will be greeted by more optimism.
The region’s real estate markets were remarkably resilient in 2021, with an estimated 30% rise in volumes compared with 2020, a record bounce back. Whether there are similar levels of activity ahead is dependent on how the pandemic develops and the response of policy makers.
Omicron has scared governments worldwide into clamping down on travel and trade, however markets have been less concerned about a variant that appears to cause milder symptoms. Higher vaccination rates (Asia is 50% fully vaccinated but some nations have more than 70% double-jabbed) and better treatments should encourage more countries to relax travel restrictions and ease social distancing.
There are reasons to be positive: Asia Pacific economies recovered lost GDP growth this year and will grow further in 2022, led by India (8.8%) and China (8.2%), although Hong Kong and Singapore forecasts (6.5% and 6.4% respectively) are also bullish. The weight of capital allocated to the region by private equity real estate funds suggests active deal making ahead. While a relatively benign inflationary environment suggests a modest interest rate rise.
Of course, there are risks, least of all around geopolitical tensions. The region’s economies are more integrated following recently negotiated trade agreements, and any tariffs changes or import restrictions will create a widespread negative impact.
If the same trends observed in 2021 persist then cross-border investors will remain focused on the larger, more liquid markets of Korea, Australia and Japan, while China’s investment levels, although high, will be driven by domestic buyers. For the international investor, Asia’s largest economy is beset by uncertainties over zero-Covid policies, debt bubbles and shifting government priorities. Hong Kong increasingly moves in sync with the Mainland. Singapore’s stability, however, should maintain its allure.
Industrial & logistics will continue to be the favoured sector, despite supply chain disruption. The sector has come to encompass a broader range of uses including manufacturing and storage, R&D, data centers, high-tech manufacturing, last mile delivery/urban logistics and temperature-controlled facilities.
Life sciences, flexible office space, senior housing and multifamily housing will remain popular. The prospects for the traditional offices, high end or tourism-related retail and hospitality are less certain. The pandemic, combined with advances in technology and changing habits, is causing investors to rethink strategies. Regional retail and hospitality rely heavily on cross-border tourism, particularly from mainland China, and without a resumption of travel it is difficult to see a way forward.
Older offices in core business districts face challenges from technology-enabled hybrid working. Meanwhile, younger generations expect a different experience from seasoned staff, with a greater emphasis on wellbeing, collaborative spaces and virtual communications.
Sustainable buildings are attracting investors, developers and occupiers, among a rising tide of regulation and a growing awareness of ESG. Net zero pathways and low energy buildings will become a priority over the coming years. Mounting evidence of a ‘green premium’ suggests a tangible shift is underway and investors don’t want to be left behind.
This article was originally published in https://www.savills.com
