Market Outlook

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, with a following press conference that was both hawkish and confusing resulting in a lot of volatility until now. 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 nearly 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 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.

The 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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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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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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