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.

Singapore is the top source of global cross border capital for the industrial and logistics (I&L) sector, while Japan ranked fourth after Canada and the UK.

Japan and Australia are among the top 10 global destinations for cross border capital investments in I&L.

Colliers’ latest Global Capital Markets Insights and Outlook: Industrial & Logistics Report further reveals that US$26 billion worth of industrial assets have been sold across Asia Pacific year-to-date (Sept 23), with most transactions done in China, Australia, South Korea and Japan.

Despite current economic headwinds and constraints on airline seat availability, hotel performance in Asia Pacific has continued to improve in 2023.

The recovery continues to be largely driven by domestic demand, although the return of mainland Chinese tourists at the beginning of 2023 has started to trickle into neighbouring markets with greater velocity in the past quarter.

The strong performance of hotels over the past 12 months relative to other asset classes, combined with the cyclical recovery and the nature of inflation hedging, is ensuring that investor appetite for operational real estate, such as hotels, continues to strengthen. Assets in tier I countries (Australia, Japan and Singapore) alongside resort markets are performing especially well.

This report was originally published in https://www.cbre.com/insights/reports/2023-asia-pacific-hotels-hospitality

CBRE’s 2023 Asia Pacific Real Estate Market Outlook Mid-Year Review reviews the predictions we made at the beginning of 2023, and reveals our outlook for the rest of the year.

Our original forecasts from January were largely correct, although the subdued impact of mainland China’s re-opening has led us to push back predictions for the expected timing of the recovery by 6 to 12 months. While leasing momentum in occupier markets is strengthening, the investment volume is unlikely to recover before H1 2024.   

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

Economy
Core inflation along with a stronger than expected employment market have reduced the likelihood of a hard landing in the U.S., with CBRE expecting mild negative growth to occur in Q4 2023 and Q1 2024. With the upward interest rate cycle having been prolonged, rates are likely to stay high for longer.

Investment
Asia Pacific commercial real estate investment volume is unlikely to recover before H1 2024 due to insufficient yield expansion and the higher cost of finance. Japan will remain attractive to investors on the back of low interest rates and positive carry, and hence will continue to outperform. Investment sentiment elsewhere is expected to improve once the cost of borrowing starts to come down. Korea, which was the first market to implement interest rate hikes in the current cycle, is now witnessing an increase in investment activity now that the cost of finance has begun to fall.

Office
While CBRE’s market forecast has been largely accurate, the recovery of office space demand has lagged office-based employment growth. Office occupiers retain a prudent attitude towards portfolio planning amid the challenging macroeconomic environment. Although flight to quality and a focus on green buildings remain key trends, expansionary sentiment has been subdued.

Logistics
Although logistics demand continues to gradually moderate from pandemic-era highs, regional rents displayed resilience in H1 2023, with performance bifurcating between tightly supplied markets, such as Singapore (prime) and the Pacific, and oversupplied locations. Rental growth in markets with a supply shortage will nevertheless lose momentum as demand tapers off.

Retail
The tight job market and resumption of international tourism underpinned strong consumer spending in H1 2023, boosting expansionary sentiment among retail occupiers.

Hotels
However, the slow return of mainland Chinese tourists continues to weigh on the recovery; a trend that is also impacting hotels, with the recent rise in room rates now showing signs of plateauing.

This report was originally published in https://www.cbre.com/insights/reports/2023-asia-pacific-real-estate-market-outlook-mid-year-review

The real assets sector in the Asia Pacific is undergoing rapid transformation due to technological advancements, shifting demographics, and evolving investor preferences.

Governments in the region are introducing regulatory reforms to promote sustainable development and safeguard stakeholders’ interests. Despite challenges, the region’s fast-growing economies present ample opportunities for smart investors, especially with the focus on alternative asset types and sustainability initiatives.

Find out more about key regulatory developments for different markets in the APREA Real Assets Bulletin. The bulletin covers ongoing challenges and the actions that are being taken to mitigate them.

Global markets continued their journey of price discovery during Q1 2023, with investment activity subdued relative to previous years. The pricing alignment is most likely happening first in North America and Japan. For other locations, market yields/cap rates face another quarter of adjustments, before stabilizing.

Colliers Global Capital Markets – Insights & Outlook Report unveils the impact of interest rates on real estate pricing and investment volumes across the world. Aside from examining inflation trends globally, the report also analyses the impact on real estate pricing going forwards based on the Central Banks’ likely path on policy rates. 

Over the coming months, we will be looking at markets by sector and providing fresh Asia Pacific insights along with global markets research.

Southeast Asia (SEA) is expected to be one of the leading sources of growth for the global economy as the United States and Europe tiptoe around a potential recession. Cushman & Wakefield’s latest paper explores how SEA real estate market is positioned to develop given the latest economic and property trends. The report looks at the impact of China’s re-opening and rising interest rates and provide our views on investment opportunities, rents and capital value outlook for major property markets in SEA.