Market Outlook

The year 2023 was an especially tough one for real estate. Declines in asset valuations, which had begun in the second half of 2022 in many markets, proliferated across a broader range of markets through the rest of 2023. Transaction volume also continued to fall through the year, with dealmaking often paralyzed by the standoff between potential buyers and sellers on pricing.

Investors will be hoping for a better 2024, where we find a floor in pricing that will return the market to more-normal levels of activity. When and how that happens remain to be seen. It may be through increased distress forcing sellers onto the market. Or we might eventually see interest rates start to fall, returning confidence to potential buyers. Whatever the details of exactly when and how we reach that point, the sudden market movements we’ve seen over the last 12 to 18 months have shifted the playing field. Investors are reassessing their real-estate allocations and strategies to mitigate significant risks but also exploit opportunities posed by this market dislocation.

Globally, inflation appears to be stabilising, and interest rates have possibly reached their peak, suggesting a potential soft landing for the global economy. However, several risks persist, including geopolitical tensions, economic downturns due to tighter credit conditions, and the possibility of a resurgence in inflation triggered by unexpected spikes in oil prices.

Our latest paper explores the impact on the Singapore office, industrial, retail, private residential, hotels, and investment markets.

As experts in commercial real estate, our work is built on successfully identifying and navigating opportunities for our clients. In our fourth annual Global Investor Outlook report, we provide a comprehensive, in-depth look at the trends set to dominate the investment market and where we think opportunities can be found in the year ahead. We have synthesised views from our senior Capital Markets experts and investors around the world.

In 2024, challenging conditions will persist, but a clearer rate outlook and tightening bid-ask spreads appear to be on the horizon. As investors continue to seek stability in policy environments, the industrial & logistics (I&L), multifamily and office sectors largely remain their top picks in the upcoming year. As momentum builds, the best-positioned investors will be those who are ready to act on opportunity.

Global Key Themes

• Real estate assets retain appeal despite ‘higher for longer’ interest rates. Pricing will continue to adjust to a more realistic equilibrium, and we expect transactions to pick up in H2 2024.
• Pockets of opportunity are continuing to emerge under tighter conditions. Property funds are facing redemption pressures, and a higher cost of capital is seeing more owner occupiers unlock capital via sale and leaseback transactions.
• A calmer rate environment is coaxing out capital. We anticipate investors will begin to deploy capital that is primarily opportunistic or value-add led on a selective basis.
• Investors continuing to flock to I&L assets due to their perceived stability and growth potential. Investors are migrating to related sub-sectors such as cold/dark storage.
• Number of alliances are growing as investors look at different opportunities to pool resources and mobilise funds. The complexity of accessing some specialised assets such as student housing and data centres will drive more partnerships and joint ventures between investors and developers.
• Growing acceptance of ESG as a key element of investment decision-making. A record proportion (25%) of investors surveyed have ESG-based disposal and acquisition strategies in place, particularly in EMEA and APAC – up from 10% just two years ago. We expect a wave of disposals and value-add opportunities to enter the market.

The real estate market has experienced a significant change due to the global inflation and rise in interest rates in the last two years. Moreover, the sector has been undergoing a transformation driven by technological innovations, which has changed the outlook and expectations of the market participants. In response to the persistent inflationary pressures, the regulators in the APAC region have adopted various measures to protect the stability and integrity of the real estate market in Q2 of FY24.

One of the common themes across the region is the implementation of stricter anti-money laundering rules, which aim to increase the transparency and accountability of the transactions. For example, Australia, India, Singapore and Japan have all introduced new or enhanced regulations to combat money laundering in the real estate sector.

Another trend that is shaping the real estate market in the APAC region is the growing emphasis on environmental sustainability and social responsibility. Many developers and builders are adopting net zero targets and improving their ESG credentials by incorporating green technologies and practices into their projects. This not only reduces the environmental impact of their operations, but also creates value for their customers and stakeholders by enhancing energy efficiency and reducing energy costs. Therefore, by aligning their strategies with tech-enabled initiatives, they are creating a more resilient and competitive market.

These developments indicate that the APAC region is preparing for a new era of opportunities and challenges for investors and developers in the housing and commercial real estate sectors. The regulatory updates in Australia, India, Japan, China, Singapore and Hong Kong provide a framework and guidance for navigating the changing market conditions and expectations. They also reflect the diversity and dynamism of the region, which offers a range of prospects and potentials for diverse types of real estate investments.

In this edition of APREA Real Assets Bulletin, we have covered the regulatory updates pertaining to green transformation in real estate, tech-led strategies and initiatives adopted to streamline the real-estate transactions, and risk-mitigation measures undertaken by APAC economies through anti-money laundering measures for safeguarding the real estate sector.