Market Outlook

The real estate market in the Asia Pacific (APAC) region has shown remarkable resilience and adaptability despite the rapidly changing global landscape. Geopolitical advancements in APAC economies have led to a transformation of the real estate sector, with technology and sustainability integration gaining traction. These changes have also impacted the development of fast-paced projects.

As the real estate industry around the world catches up with technology-led innovations, there is a shift towards environmentally friendly building practices due to rising carbon emissions. This shift is evident in the updated real estate regulations in the APAC region for 3QFY24. Many APAC countries, such as China, Singapore, Australia and Japan have introduced green infrastructure and technology-integrating guidelines to address this challenge.

Further, countries like Australia and Japan have shifted their focus from specialised asset classes, such as data centres and cold storage, to Build-to-Rent asset types. While demand from occupiers has weakened due to tighter liquidity, investors have shown a keen interest in commercial and industrial real estate. Moreover, a new theme of inclusivity and equal housing rights has emerged in economies such as Hong Kong and Japan, which is expected to impact other APAC countries in the coming years.

Despite the ongoing challenges, APAC economies present an attractive opportunity for investors due to regulatory updates across various classes and asset types. These economies are expected to play a crucial role in channelling regional investments and development.

Economy

Despite avoiding a recession in 2023, Singapore continues to face external headwinds from weak growth in major economies. Activity in outward-oriented sectors is thus expected to remain subdued in H1 2024. However, sustained recovery in air travel and tourism, and resilient labour market conditions will support growth in the tourism, aviation-related and consumer-facing sectors. GDP is forecasted to grow 1 – 3% in 2024, faster than 2023’s 1.2% y-o-y growth.

Office

While leasing demand from the tech sector fell in 2023, Singapore’s office market has been resilient, with diversified demand drivers such as consumer, private wealth and flexible workspace sectors. Sentiment could pick up in H2 2024 as interest rates and inflationary pressures ease, economy strengthens, and companies regain confidence to embark on expansionary plans.

Industrial

With some 3PLs in consolidation mode, leasing demand is expected to be more diversified in 2024. Life sciences and technology occupiers remain active in seeking quality spaces, while the manufacturing rebound should translate into more leasing activity by electronics, general manufacturing and engineering firms.

Retail

Ongoing challenges could curtail retailers’ expansionary demand this year. However, Tourism remains a bright spot on the back of a strong pipeline of concerts and events. Expectations of a full tourism recovery, coupled with limited supply completions in 2024, should lend support to retail rents.

Residential

Rental and price growth moderated in 2023 alongside sluggish sales and ample completions. Growth momentum is expected to ease further in 2024 amid increasing resistance to high price points and as the rental market digests higher supply from peak completions in 2023.

Investment

Despite cautious investor sentiments through 2023, there is ample liquidity waiting on the sidelines. Due to its macroeconomic stability, pro-business environment and political-neutral stance, investors remain confident and interested in Singapore real estate assets for portfolio diversification and wealth preservation.

This report was originally published in https://www.cbre.com.sg/insights/reports/singapore-market-outlook-2024

High interest rates, a slow recovery in mainland China and geopolitical tension weighed on the Asia Pacific real estate market in 2023. While these concerns are set to persist into 2024, CBRE expects an upturn to commence by mid-year.

From an economic perspective, the U.S. economy is poised for a soft landing in 2024, and the downward interest rate cycle in Asia Pacific is expected to commence mid-year.

The office market will continue to witness a supply boom and occupiers will leverage the higher availability to drive flight to quality and workplace optimisation. Prime office and green space will see growing demand.   

In the retail space, despite a cautious approach to CapEx and store network planning, retailers are poised to capitalise on favourable market conditions to upgrade and expand.

Logistics occupiers’ appetite for expansion is expected to moderate further, and occupiers will give closer scrutiny to real estate plans and capital expenditure.

Expectations are that while hotel ADRs should normalise in most markets, occupancy growth in well-managed assets should drive revenue growth.

Commercial real estate investment is expected to remain muted in H1 2024. However, H2 2024 will see an uptick in investment activity on the back of re-pricing and interest rate cuts.

This report was originally published in https://www.cbre.com/insights/books/asia-pacific-real-estate-market-outlook-2024

Cushman & Wakefield’s 2024 Asia Pacific Office Outlook provides supply, demand, vacancy and rent data forecasts for cities in Australia, China, India, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

REGIONAL OVERVIEW

Key Messages:

• Inflation, though largely improved, remains above target bands in most markets across the region; a ‘higher for longer’ interest rate scenario is anticipated.
• Asia Pacific economic growth is expected to slow but to remain in positive territory (3.5% to 4.0% real average annual growth) in 2024.
• Despite a weaker economic outlook, regional office demand is forecast to reach pre-pandemic levels in 2024—but above average levels of new supply will drive vacancy higher.
• Rental growth is forecast to remain flat in 2024 before slowly accelerating from 2025.
• Newer, high-quality buildings are likely to outperform given the ongoing flight to quality.

Against a volatile economic backdrop, the Asia Pacific office market remains steadfast and continues to grow. Approximately 50 million square feet (msf) of Grade A office stock was absorbed across the region’s top 25 cities during the first nine months of 2023, with a further 12 msf expected in the final quarter. Annual office demand in 2023, forecast at 62 msf, is an 11% improvement on last year’s 55 msf.

New supply in 2023 will total 109 msf, outstripping demand and causing vacancy to tick upwards to 17.6% from 16.1% in 2022. Rental growth has subsequently slowed and is likely to be down around 0.5% on a weighted average basis.

The outlook remains broadly skewed to the positive. Demand is forecast to increase to 83 msf in 2024 and to 87 msf in 2025, which would match pre-pandemic performance. However, waves of new supply are also expected, with nearly 235 msf of completions forecast over the next two years to place further upward pressure on vacancy, which is now expected to peak at 18.4% in 2024 and then hold steady through 2025. This will keep downward pressure on rents which are likely to remain flat in 2024, at the weighted regional average level, before slowly accelerating from 2025. Accordingly, the window of opportunity remains open for occupiers over the near term.

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