This article first appeared in City & Country, The Edge Malaysia Weekly on February 7, 2022 - February 13, 2022
With the volume of commercial real estate investments in Asia-Pacific rising 30% year on year (y-o-y) to US$140 billion last year, international property consultancy CBRE forecasts a further increase of 5% to 10% to about US$150 billion (RM628 billion) in 2022.
“Should this be achieved, it would set a historical high for annual commercial real estate transaction volume in the region,” says the firm.
This projection is supported by the findings of its 2022 Asia Pacific Investor Intentions Survey, which indicated that investors are expected to purchase more real estate over the course of this year.
According to the CBRE report, investors continue to have a strong buying appetite, with about 60% of the respondents planning to buy more property in 2022. “International capital is expected to remain active, with more investors from outside Asia-Pacific set to commit to new purchases to capture the region’s growth potential and diversify their portfolios,” it adds.
Investors from Singapore, Australia and South Korea displayed the strongest intention to purchase real estate in the region.
Meanwhile, real estate funds in Asia-Pacific displayed their intention to sell in 2022, which is mainly due to the chain effects of the escalating debt crisis among property developers in mainland China. CBRE expects to see a wave of disposals by closed-end real estate funds during the year.
Nonetheless, the overall upbeat mood may be affected by the economic uncertainty due to the rapid spread of the Omicron variant of Covid-19, which has led to the reimposition of lockdowns and other restrictions on social and business activities in several countries, as well as delaying plans to relax border controls.
Other obstacles to investments identified by survey respondents include asset price appreciation driven by intense competition for high quality assets and ample investment liquidity. CBRE expects the flight-to-quality occupier demand to continue supporting prime asset valuations in 2022.
Meanwhile, the high inflationary pressure has forced the US Federal Reserve to commence monetary policy normalisation earlier than anticipated. However, CBRE believes that as inflationary pressure remains manageable in major Asia-Pacific markets, the impact of higher US interest rates will be limited.
In the region, China is likely to continue loosening its monetary policy to maintain economic growth, while the Bank of Japan has stated it does not plan to adjust rates this year. This prompted the survey respondents to display less concern about inflationary pressure and interest rate hikes in 2022.
Moreover, banks in the region remain accommodative towards lending for commercial real estate acquisitions while continuing to closely monitor residential lending to avoid overheating. However, it is worth noting that China, Singapore, Taiwan and South Korea tightened mortgage lending in 2021.
Despite the ongoing pandemic-related uncertainty and aggressive pricing for well-located high-quality assets, investors are still seeking higher returns. This is seen in the survey results, which showed core-plus and value-added investments gaining stronger interest among investors.
According to the report, real estate funds demonstrated a stronger preference for value-added opportunities. “Many such investors are already looking for well-located assets that offer upgrading opportunities, particularly in undersupplied office markets such as Singapore and Seoul,” says CBRE.
Asset repositioning is another investment strategy adopted by investors, with several fund managers recently acquiring industrial and hotel properties in Hong Kong for conversion into self-storage or residential use. In Australia, selected retail landlords are considering transforming underutilised shopping centres into logistics facilities.
While logistics remains the most preferred sector for investment, investor interest softened compared with last year’s survey, mainly because the market is anticipating limited room for growth in the sector over the next three years after the 33% jump since 2010.
Interestingly, the survey’s findings show a stronger interest in office assets. “This is largely a consequence of investors adopting a more optimistic view of the outlook for leasing demand after the introduction of hybrid working was found to have only a negligible impact on bricks-and-mortar office requirements,” CBRE explains.
Compared with 2021, more investors expect office demand to increase slightly (+10%) over the next three to five years. Grade A offices in prime locations will be the focus as buyers look to capture flight-to-quality demand. Elsewhere, Grade B offices in Japan offer opportunities due to the relative shortage of assets in this category compared with the Grade A segment.
Other than that, the office leasing sentiment improved across Asia-Pacific in 2021, with demand for traditional office space picking up strongly. CBRE expects the office net absorption rate to increase 10% y-o-y in 2022.
Office rents in Australia, China and India are set to recover this year, with the incentives in these countries peaking.
In Asia-Pacific, Tokyo remains the top city for cross-border investment for the third consecutive year. The market offers a large volume of mature multifamily assets.
Meanwhile, Singapore remains a major destination for cross-border investors, including those from Japan, Taiwan and beyond Asia-Pacific.
Offices are the main focus, with the conclusion of a series of core-plus and value-added acquisitions by international fund managers last year, in anticipation of steady rental growth, limited new supply and strong leasing demand from technology companies, says CBRE.
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