Market Outlook

Economy

The moderate recovery of the Japanese economy is expected to continue in 2023, driven by consumer spending and corporate capital investment. However, with the output gap still negative, the Bank of Japan (BoJ) has made it clear that it will retain its loose monetary policy for the time being. If the economic recovery were to lead to a rise in corporate earnings as well as real wages, thereby maintaining moderate inflation, the likelihood of a shift to a tighter monetary policy would increase. However, the consensus is that such a move, were it to eventuate, would not occur until H2 2023 at the earliest.

Office

While relocations to higher grade office buildings were on the rise in 2022, downsizings and consolidations were still widely observed, leading to a general upward trend in vacancy rates. As an increasing number of companies favor the implementation of hybrid working schemes, tenants are likely to become more selective than before with respect to office specifications. With increases in supply forecast for most cities, market rents are likely to continue to fall.

Retail

The Ginza highstreet market will continue to be driven primarily by demand from luxury goods brands in 2023. While high street rents appear to have bottomed and maintaining the low levels, they should begin to rise once again in Q4 2022 and continue to slowly increase thereafter.

Logistics​

Unprecedented volumes of new supply is expected across Japan in 2023, due to the greater focus placed on logistics properties by developers. As a result, vacancy rates are expected to rise in all four metropolitan areas, despite continued robust tenant demand for logistics space.

Investment

Commercial real estate transaction volume in Japan for 2022 is expected to be slightly lower than the previous year’s level.  Nevertheless, expected yields have continued to decline, indicating that investor appetite remains stable. Some investors have become more selective amid overseas interest rate hikes and concerns over a possible recession in US and Europe.  However, the BoJ appears unlikely to tighten its monetary policy in the short term, and appetite for Japan real estate looks set to remain robust in 2023.

This report was originally published in https://www.cbre.com/insights/reports/japan-major-report-japan-market-outlook-2023

Although the pandemic has faded into the background, 2022 was still a tumultuous year highlighted by events such as the war in Ukraine, the subsequent energy crisis, and persistent inflation leading to interest rate hikes. A global recession is likely, but the Japanese economy looks to fare better due to its belated reopening. The majority of investors in Japan are still pursuing new investment opportunities, and 2023 will see more participants. The matured Japan market will welcome a more diversified pool of investors, which will give the market more liquidity and greater potential for growth.

This report was originally published in https://www.savills.co.jp/research_articles/167577/209392-0

Asia Pacific’s key office markets tell a story of resilience overall, with steady demand in some markets, surging supply in others – and some cities in India experiencing both surging demand and supply.

As has been the case since the start of the COVID-19 pandemic, the Asia Pacific office market continues to demonstrate its resilience. Fully 153 million square feet (msf) of office space has been absorbed across the region’s top 25 markets since the end of 2019, with 47msf of that occurring in the first nine months of 2022. Indeed, Asia Pacific continues to be the only region to record consecutive quarters of positive net absorption throughout the pandemic.

The broad outlook is for this to continue, though inevitably with nuance at the local level. Full-year office demand in 2022 is expected to reach 65msf, on par with the 63msf absorbed in 2021 and well above the pandemic lows of 2020. A modest improvement is forecast in 2023, with net absorption projected to reach 71msf (+9% y-o-y), before growth stabilises at around 5% per annum through to 2026. While this represents robust demand, it comes at a time of heightened supply as projects that were delayed in the early period of the pandemic regain momentum. Following the 112msf of new supply in 2022, a further 130msf is expected to be delivered in 2023 before slowing to less than 100msf from 2024 onwards. Inevitably, with supply outstripping demand in the near-term, regional vacancy is forecast to soften further, rising from 12.5% pre-pandemic to reach a little over 18% in 2023, after which it is expected to hold steady.

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Knight Frank takes a look at some of the ‘big picture’ issues impacting owners and users of real estate in the Asia-Pacific region for the upcoming year.

Global inflation in 2022 is at its highest since 1996. As most central banks in Asia-Pacific turn the screws on monetary policies to stave off inflation, growth will inevitably slow in the coming year. As monetary authorities are compelled to keep pace with the Fed’s hiking cycle in addition to walking the tightrope between growth and inflation, the region’s interest rates in 2023 will approach multi-year highs. 

Despite these ongoing stressors, Asia-Pacific is set to remain the world’s fastest-growing region in 2023. Even as growth momentum continues to normalise across much of the region, domestic-oriented economies such as emerging Southeast Asia and India are forecast to remain supportive of overall regional growth in the upcoming year. 

As such, Knight Frank expects to see real estate markets in the region weather a period of transition as occupiers and investors review their strategies in a rapidly evolving environment.

This report was originally published in https://apac.knightfrank.com/apac-outlook

Learn the latest industry and regulatory developments from India, Hong Kong, China, and Singapore.

Highlights:

India

• Formation of New SEZ Policy: India Budget 2022
• New Fund Management Regulations Issued for IFSC-GIFT City

China and Hong Kong

• New Acquisitions and Equity Fundraising Guidelines for C-REITs
• New Affordable Rental Housing Guidelines for C-REITs
• Joint Venture Between Originators and Fund Managers
• Further Policy Support for C-REITs

Singapore

• Building Green Data Centres – Singapore Lifts Moratorium on New Data Centres, Introduces Environmental Sustainability Standards
• Additional Buyer’s Stamp Duty (ABSD) Imposed on All Transfers of Residential Property into Living Trust
• Proposed Legislation for Compulsory Compliance with Code for Qualifying Retail Premises
• Consultation on Changes to Carbon Pricing Act 2018 to Revise Carbon Tax Regime

With Singapore’s economy in a position of strength, being forecasted to surpass pre-pandemic average annual growth numbers by growing 3.8% year-on-year in 2022, Cushman & Wakefield’s latest Singapore Market Outlook H2 2022 report expects the overall Singapore property market to see relatively strong but slower growth as investors seek out safe havens for wealth preservation and diversification amidst global uncertainties.

This report was originally published in https://www.cushmanwakefield.com/en/singapore/insights/singapore-market-outlook-h2-2022

Despite the easing of Covid’s fifth wave in Hong Kong1, the US Fed increasing interest rates has hindered the investment market recovery and delayed investors’ decision-making in Q2. We expect sentiment will pick up in H2 2022 when investors gain more clarity on the rate hike, economic outlook and more relaxed social-distancing rules.

Supported by the strong demand and rental performance, industrial assets should remain the most preferred asset type, while co-living and residential developments are also attractive given solid housing demand. We expect to see funds and real estate firms, which accounted for 87% of the investment volume in Q2, to remain the key driver of the investment market for rest of 2022.

In H1 2022, despite the economic slowdown in Hong Kong, the market still witnessed solid demand from third-party logistics players (3PLs). This, coupled with tight vacancy, pushed rents up further by 1.1% QOQ in Q2 2022. We recommend landlords or investors consider partnerships with operators from fast-growing sectors like logistics, cold storage, self storage, or data centres by arranging long leases to secure stable rental income and higher yields.

In Q2 2022, the office market witnessed a pickup in momentum driven by rising leasing enquires and inspection activities, but commitment in leasing deals remained slow. The overall vacancy rate continued to climb up during the quarter, rising by 0.4 ppt to 11.2% in Q2 2022.

Favored by decentralization demand from cost-saving tenants, rents in Tsim Sha Tsui and Kowloon East slightly recovered (up 1.1% and 0.8% QOQ, respectively). We recommend occupiers to explore flight-to-quality moves as more available new stock comes online in H2 2022.

Demand for office and industrial assets supports growth across key Asia Pacific markets

HONG KONG, 27 April 2022 – Leading diversified professional services and investment management firm Colliers (NASDAQ and TSX: CIGI) has today released its Asia Pacific Market Snapshot Q1 2022 report, which highlights how major Asia Pacific real estate markets continue to build on a recovery led by gains in the office and industrial segments and are looking forward to a pick-up in dealmaking across segments in the upcoming quarters.

In Australia, easing restrictions brought a return to work and travel, spurring deals worth over USD1 billion in Sydney and Melbourne’s office markets. China too saw demand surge for office space, including in business parks, with key cities witnessing the finalisation of deals worth a combined RMB11 billion (USD1.7 billion). In India, the residential market saw sales surpass pre-2020 levels while strong economic fundamentals triggered an influx of foreign capital. In Singapore, policy measures intended to cool the residential market spurred investments in commercial properties. Japan saw active investment led by REITs across multiple segments, including large office and logistics properties as well as industrial and hotel assets. The report, which examines the previous quarter’s performance of property markets in 16 Asia Pacific countries and territories, also provides forecasts for the current and upcoming quarters.

“In Q4 last year we saw a recovery taking root and, in the first quarter of 2022, that recovery really started to gather momentum across the region,” said John Howald, Executive Director and Head of International Capital, Capital Markets & Investment Services | Asia Pacific. “While the office and industrial segments have led the way so far in dealmaking activity, improving business sentiment and the growth-focused policies of governments throughout the region should come together to make demand more broad-based and spur transactions across segments.”

John Marasco, Managing Director, Capital Markets & Investment Services | Australia and New Zealand noted: “As travel resumes and people head back to the office in greater numbers, we’re seeing a significant increase in interest from both occupiers and investors for office assets. With institutional investors also looking to expand their portfolios, we expect deal volumes to ramp up rapidly as the year progresses. In New Zealand, high-quality commercial assets will attract the attention of investors, including those from overseas once border restrictions ease in the coming months.”

Demand grows in Australia and New Zealand as restrictions ease

Major Australian cities witnessed heightened demand from both occupiers and investors following the reopening of state and international borders, and the return of workers to offices. Colliers expects Sydney and Melbourne to both see substantial increases in deal volume over the year as companies look to encourage more employees back into the workplace and institutional investors seek to expand their portfolios. Demand is particularly apparent for Premium/Prime assets with greater interest emerging for higher quality assets, as well as ESG requirements and a high level of amenities in core locations. In Auckland, demand for retail and office space is being driven by investors looking ahead to the easing of restrictions once Omicron cases subside. Demand for high-quality commercial and industrial properties is also expected to strengthen later in the year when border restrictions could be relaxed, prompting overseas investors to return.

Major Chinese markets witness strong demand for office space

Foreign buyers accounted for almost two thirds of the total transaction value of RMB2.94 billion (USD462 million) in Beijing while occupiers stepped up leasing of large office spaces. In Shanghai, office and business park offices made up 60 percent of the overall transaction value of RMB5.98 billion (USD939 million). In the Pearl River Delta, Shenzhen recorded transactions worth RMB785 million (USD123 million) and Guangzhou recorded one transaction worth nearly RMB300 million (USD47 million). Colliers expects continued strong demand for office space in central business districts (CBD) and business parks across major cities, including Chengdu and Xi’an in the country’s west.

Hong Kong investors turn to hotels, industrial assets

Investment activity in Hong Kong dropped 46 percent QOQ and 6 percent YOY to HKD11.2 billion (USD1.4 billion) in Q1, after investor sentiment was hurt by a surge in Omicron cases, global geopolitical tensions and stock market volatility. At the same time, investors turned to hotel assets due to their potential to generate steady revenue as co-living or quarantine facilities. As restrictions are relaxed and macro headwinds ease, Colliers expects transaction volumes to recover in H2. Hotels will continue to attract institutional investors and industrial properties, including data centres and cold-storage facilities, and will regain the spotlight while local investors will likely continue to be focused on retail assets.

Foreign capital flows back into Singapore

Private funds and family offices snapped up prime locations as demand shifted into the commercial sector in response to government measures introduced in December 2021 to rein in the residential sector. Commercial sales drove transaction volumes, which grew 34.4 percent QOQ to SGD10.6 billion (USD7.8 billion) in Q1, boosted by the sale of the mixed-use Tanglin Shopping Centre to Indonesia’s Royal Golden Eagle for SGD868 million (USD645.6 million) in February. As borders reopen, corporate M&A and cross-border activity will fuel capital growth, and demand will increase for retail and hospitality assets. However, prices and volumes will be capped by rising interest rates and geopolitical tensions.

Fewer deals but higher volumes in Seoul office market

Deal volumes in Seoul’s office market stood at a robust KRW4.5 trillion (USD3.6 billion) following the successful closure of a few deals involving large, premium properties. Rising interest rates and dwindling supply could suppress transaction numbers going forward, but mega deals in the works involving prime assets, such as the Brookfield-owned IFC in Yeouido Business District valued at approximately KRW4 trillion (USD3.2 billion), could keep total volumes high. Office prices will continue to trend upward, mainly in the Gangnam area popular with technology companies.

Japanese REITs drive investment across multiple sectors

Japan’s real estate market saw a number of investments in the office, residential and logistics sectors, driven by strong interest from Japanese REITs (J-REITs). Investments also flowed into the hotel and retail sectors, which stand poised for a sustained recovery in line with an overall improvement in the economic outlook as the country seeks to leave Covid-19 concerns behind. Colliers expects to see an increase in cross-border transactions following the easing of restrictions on business travel to Japan. J-REITs will continue to invest in the office and logistics sectors, and interest from foreign investors is already ramping up – as demonstrated by GIC’s purchase of Seibu Group’s hotels and ancillaries for JPY150 billion (USD1.2 billion) and KKR’s plans to acquire all outstanding shares of Mitsubishi Corporation-UBS Realty for JPY230 billion (USD1.9 billion).

Download the Asia Market Snapshot Q1 2022 report here