Opportunities still exist in the real estate industry as the Asia Pacific economies prepare for challenges – The Botany at Dairy Farm Condo at Dairy Farm Walk By Sim Lian Group Limited (Hot Launch 2022)

Sim Lim Square a 99-year leasehold tenure from 1983 sits on a land area of 78,152 sq ft

2022 will be an era of growing economic recovery in Asia Pacific (Apac) economies as the majority of nations in the region have shook off the restrictions of Covid-19, triggering an economic revival. But, macroeconomic obstacles that have been causing a lot of concern, such as stubborn rates of inflation, hikes in interest rates and a global slowdown which have led to growing worries about a recession in recent times.

This is what has led to a more cautious outlook, particularly within the real estate industry. According to the research organization Urban Land Institute (ULI) investors have taken an approach of waiting and watching in the face of increasing uncertainty. “Investors recognize that risk is increasing, but aren’t clear on how much headwinds are affecting them as well as how markets is likely to be affected,” ULI says in its Emerging Trends in Real Estate Asia Pacific 2023 report.

To this end the volume of real estate transactions in Apac have plummeted since investors shift into a holding pattern and put off making decisions. ULI’s report, released in conjunction with PwC in the third quarter of 2018, cites MSCI figures that show how Apac real estate transactions decreased by 38% over the course of 3Q2022 in the range of US$32.6 billion ($44 billion) -the lowest total for 3Q in the past decade. Not surprisingly, of all Apac regions, China saw the biggest decrease of 23% in a year, which was aided by the restrictions of Covid-19 that hinder investment.

However, while a number of Apac economies are likely to see growth increase over the next few months, others are likely to break the trend. That includes China along with Hong Kong, where Covid-19 restrictions are being relaxedin the direction of the long-anticipated economic recovery. Furthermore, Knight Frank projects recovering demand in the domestically-oriented economies like India and the emerging Southeast Asian countries to further help boost growth. “Asia Pacific will be the fastest-growing region in the world,” the consultancy states in its Asia Pacific Outlook Report 2023.

This could be a positive sign for this Apac housing market as the fundamentals of the market are strong according to Henry Chin, CBRE’s global head of thought leadership for investors and research head. As investors navigate the “increasingly turbulent waters” that are expected in the near future investing strategies are being refined to capitalize on opportunities that are present on the market Chin adds. Chris Pilgrim, director, global capital markets at Colliers is in agreement. “In Asia Pacific, now is the best time for investors to choose their assets and markets,” he says.

Rate hikes are now clear and will bring back momentum in transactions
Surveys carried out with ULI and Colliers indicate how interest rate hikes are the primary issue for Apac real property investors. Since March this year, the US Federal Reserve has instituted an increasing number of rate hikes, the most recent being a 50-basis-point hike announced on Dec. 14. The increase brings an increase in the US base rate up to a range approximately 4.25% and 4.5% and is the highest level since the past 15 years.

The Fed’s rate increases have been a cascade across most of Apac but with the notable exceptions of China that has cut rates, and Japan in which rates are extremely low. With the changing economic climate investors are becoming more cautious because financing is becoming more difficult to acquire and deals are more difficult to secure.

But, Colliers anticipates the real property market to stabilize around mid-2023, when more certainty is built around the outlook for interest rates. “Similar in 2022 to the year 2022-2023 is two-part game and the main difference is that the momentum of transactions will increase during the second half of the year, as the market adjusts to a price reset,” says Joanne Henderson, Colliers’ national director research for Australia.

David Faulkner, president of ULI Asia Pacific, agrees that an asset repricing could be coming up. “Rising rates of interest and the global slowdown are starting to affect regional asset valuations , and are changing the way that investors evaluate possible transactions,” he says.

Cap (cap) rates that are used to determine the value of properties and are expected to rise in Apac in the coming years, changing from the low levels that were established over the last decade and in the wake of an expansion which is being implemented across Europe. US in the US and Europe. “Cap rates need to be lowered in order for buyers to maintain an acceptable spread over the price of debt,” ULI sates in its report.

Defensive assets
When investors are navigating the volatility over the next few months, they will seek out security-based assets that be used to protection against rising inflation says Knight Frank. “Commercial real estate that exhibits potential for growth in income along with diversification benefits, and relative stability will experience a surge in interest,” it states in its outlook.

Offices, by most accounts the biggest asset class in Apac and are likely to experience a steady demand, despite the economic downturn that has created uncertainties regarding growth in business and leasing. According CBRE’s Chin centrally-located offices that are of high-quality in cities with high growth potential are likely to provide the best opportunities, aided by the return to office by employees as well as a constant move to higher quality. ULI says that rents are likely to be higher in areas where occupant conditions favor landlords which is the case the cities of Seoul, Singapore and Sydney.

In the same way, the logistics sector will continue to be bolstered by the “seemingly endless” market that’s remained robust even as production and consumption are stagnating. Demand in major markets like South Korea, China and Australia are driven by a deficiency in availability for modern facilities in logistics and a growing use of “China and one” strategy that allows companies to diversify their manufacturing operations outside of China is expected to boost investment flows to other markets.

ULI is also highlighting that the new economy sub-sectors like data centers, cold storage infrastructure life science facilities, and self-storage spaces are anticipated to boost demand for logistics. Data company Preqin reports that a total of $16 billion in funds attained this year by close of October — more than the amount that was raised in 2021 — for the same opportunistic strategies. This demonstrates the growing interest in these different asset classes.

In the residential market multifamily properties especially in Japan are thought of as an investment class which is able to generate long-term stable streams of income. Other residential properties like senior living facilities as well as student housing have begun to attract attention and the majority of% or 43% of investors polled by ULI declaring that they are planning to participate in these areas in the coming year.

Top markets
Within the Apac regions, Singapore, Japan, Australia and South Korea stand out as locations where transaction volume and demand from investors are expected to remain strong. According to Colliers real estate investor survey, these four markets were the top of investors’ choices across different types of assets, pointing to the “overwhelming” choice for larger, established cities which are more likely provide value in a price determined.

According to ULI, Singapore is the most ranked city for potential investment opportunities, according to the survey conducted by ULI. ULI points out that the city-state continues to reap the benefits of the redirection of capital that could be directed towards China. Offices, which facilitated the deal flow within Singapore in the past, is predicted to continue to draw attention, as evidenced by the healthy rental growth projections, despite a slower pace of transactions in the final quarter of last year.

In Japan the investor’s enthusiasm has increased due to the weakening yen as well as an improved inflation outlook. Furthermore, the accommodating policies of the monetary authorities have resulted in caps rates staying firm and in some instances shrinking, attracting an interest from investors, according to ULI. Japan is also attractive due to its multifamily sector, which, CBRE highlights, offers the highest yield on cash in the world.

Australia is predicted to be resilient, largely supported by market for office space that are located in Sydney and Melbourne and the logistics industry that is a notable asset category for the country in recent times. Additionally multifamily housing, student housing and senior housing sectors have begun to gain popularity within the country. In the meantime, South Korea has been supported by a robust office market that has been boosted by a surge in office rents following the Covid-19 and record-low unemployment, according to Colliers. In Seoul the prime office rents increased 21.4% y-o-y in 3Q2022 and reached an all-time high according to research conducted by JLL.