This article first appeared in City & Country, The Edge Malaysia Weekly on December 25, 2023 - January 7, 2024

Rising mortgage rates, high inflation, geopolitical issues and low consumer and business sentiment are but a few factors impacting property markets worldwide. Despite the global and local challenges faced, the markets are looking to the prospect of recovery next year, with opportunities seen especially in the logistics/industrial markets as well as the living sector encompassing build-to-rent, co-living, student accommodation and retirement living. Flight-to-quality trends driven by sustainability and environmental, social and governance (ESG) principles were also observed in the office markets, many of which were impacted by hybrid work.

We asked experts about the performance of the real estate market in their countries, their forecasts as well as opportunities expected in the new year.

Ben Burston

Chief economist and head of research & consulting, Knight Frank Australia

After a sustained period of monetary tightening, markets have been watching for signals of economic slowdown in Australia as higher interest rates act to cool consumer spending and business investment. However, the slowdown has not been as bad as many feared and the Australian economy remains on track for a soft landing with surging population growth providing substantial momentum as we head into 2024.

While resilient economic growth has been welcomed, it has been accompanied by persistent inflation and high interest rates, which took a toll on sentiment in 2023 as property markets continued to adjust to higher borrowing costs. However, after a tumultuous period, the market can look ahead to consolidation and to the prospect of recovery emerging in 2024. Higher cap rates provide a more attractive entry point for investors, generating the prospect of higher returns going forward. This is clearly illustrated when we assess historic Australian market cycles and the performance achieved after pricing is reset in the aftermath of interest rate hiking cycles. The period immediately after the conclusion of the rate hike cycle ending in 1994, 2000 and 2010 was in each case a very attractive time to invest, achieving well above average returns over the following five years.

In terms of strategy, investors are seeking greater diversification into alternative sectors and the living sectors are at the front of the queue, led by build-to-rent but also encompassing co-living, student accommodation and retirement living. The shift to living sectors partly reflects a preference for more defensive strategies at this point in the cycle, but is also due to structural under-supply in rental markets and the ability to adjust rental income streams more quickly than other sectors in response to high inflation. Melbourne has emerged as the most active market, but Brisbane and Sydney are also experiencing a high level of activity.

Industrial markets also remain in favour, supported by continued rental growth and an ongoing need for new developments to accommodate the latest technology surrounding warehousing, distribution and stock tracking. For instance, robotic systems favour square warehouse spaces with higher eaves and greater racking density and these types of demands act to make older premises functionally obsolete, generating sustained demand for new stock.

Meanwhile, in the office market, the smaller markets of Brisbane and Perth are currently outperforming the larger markets of Sydney and Melbourne and the strength of the Queensland and Western Australian economies will remain supportive in 2024, as evidenced by strong population growth of 2.8% and 2.3% respectively over the past year. Sydney and Melbourne are experiencing higher vacancy rates in parts of the market, but prime assets in the core CBDs are more resilient and, in 2024 we expect a gradual improvement in sentiment starting with neighbouring precincts.

In spite of a challenging environment for property globally, underlying demand for Australian real estate remains high and we expect a strong resurgence in activity once central banks clearly signal a peak and formal valuations adjust to narrow the current bid-ask spreads.

Bjarne Bauer

Managing partner, NAI Sofia Group Shanghai

Property prices in China on average fell about 15% during the first three quarters of 2023. They had already declined about 10% in 2022. This is, however, not the case for its major cities such as Shanghai and Beijing. In Beijing, we see a minimal decline of just about 5% and in Shanghai, we see a further increase of about 3%.

The decline in construction activity is even more dramatic. Real estate construction activity in 2022 was only about half compared with the prior year. It is still low in 2023 but has increased slightly because of government initiatives to stabilise the market. Even top locations like Shanghai, Shenzhen and Beijing saw lower construction activity in 2022 and the first half of 2023, compared to 2021.

Nonetheless, property prices have gone up tremendously over the past decade. Even with a bit of a decline today, they are still much higher than what they were five to 10 years ago.

The residential sector saw the highest price growth and also the strongest correction. Apartment prices in Shanghai saw an almost tenfold increase between 2003 and 2023, from RMB4,900 per sq m (psm) in 2003 to RMB47,000 psm in 2023, whereas Tier 2 and Tier 3 cities saw a five to sevenfold increase, still significant when compared to other countries. In Tier 2 cities, apartment prices were about RMB800 psm in 2003 and increased to RMB5,000 psm in 2021. Even if prices have decreased to RMB4,000 psm today, investors would only suffer a loss if they invested at the peak of the market.

Meanwhile, China continues to experience urbanisation whereby millions of people move from villages and into cities every year. It is also becoming more common for young families to stay in their own apartments, and not with the older generation. This, combined with declining construction activity and considerable inflation rates, will likely stabilise prices and eventually even lead to further price increases. Nonetheless, the period when residential real estate prices double every few years might be gone forever.

Institutional capital from around the globe has mostly flown into China’s industrial property sector, predominantly logistics properties and data centres, and into its commercial property sector, mainly office buildings. In some regions of China, there is now an oversupply of commercial real estate, but much less severe than in the residential sectors. In the residential sector, some market observers believe that there are up to 50 million apartments currently sitting vacant, out of which only about half are likely to be acquired in the near future.

In the office market in cities like Beijing, Shanghai and Shenzhen, the vacancy rates used to be as low as about 5% and have increased to about 20%. This is still quite healthy, compared to other countries. Investors, users and even the government will need to adjust to the new reality.

In the Yangtze River Delta near Shanghai, we note a continuing demand among occupiers for industrial premises. We saw that international institutional capital has flown into logistics premises and business parks in 2023. The situation is similar in the Pearl River Delta area near Shenzhen. Investors continue to be bullish about investing in data centres in the areas of Beijing and Shenzhen, but not as much in Shanghai where observers believe that the market demand can be met for the foreseeable future with the existing capacity.

Simon Smith

Regional head of research & consultancy, Asia-Pacific, Savills Hong Kong

Hong Kong real estate has faced a rising number of challenges in 2023 such as higher interest rates that have pushed a significant number of investors out of the market and slowing the economic growth. This has cramped occupier demand across all major property sectors. Such negative cyclical factors have been compounded by fundamental changes to the way markets have traditionally functioned, largely as a result of technological disruption accelerated by the pandemic.

For some years now, e-commerce has threatened bricks-and-mortar retail and forced a shift towards “omni-channel” sales and marketing, a shift compounded by the changes in consumer behaviour brought by the pandemic. The sector has not been helped by a slower-than-expected recovery in tourism, especially from Mainland China. Further challenges have come in the form of the rising appeal of alternative destinations, including Mainland China itself.

The office sector, on the other hand, has faced a work-from-home revolution enabled by networking software and a changing perception of the work-life balance. Even if Hong Kong has been less affected by these changes than elsewhere, negative shifts in demand have been amplified by an oversupply of office space and an absence of Mainland China firms entering the territory. The rising cost of ESG compliance for both tenants and landlords have also contributed to uncertainty and the threat of redundant assets.

Rising mortgage rates and large-scale emigration have not helped in increasing the demand for the residential sector. It is evident in the discounting of new property launches in Hong Kong. While higher numbers of professionals from Mainland China may help to plug the demand gap, buying interest appears muted for now. The number of unsold units in the luxury markets is currently weighing on values.

Looking ahead to 2024, the Year of the Dragon typically denotes luck and prosperity, but the year may, initially, see further obstacles as higher interest rates persist and economic growth lags. Office rents, over the year, may fall a further 5% to 10% while prices could decline 10% to 15% across the market as a whole with a wide variation depending on quality and location. While the retail sector will remain a shadow of its former self, we expect a rise in rents and values in the order of 0% to 5% having registered a peak to trough correction of over 60% since 2015.

The luxury residential market will continue to look vulnerable in 2024 and we expect to see falls of 15% to 20% in values. The higher mortgage costs and fewer buyers from Mainland China have impacted the market as rising numbers of foreclosure sales have been evident as we approach the end of 2023. Number of unsold landed houses and luxury apartments could take several years to be fully absorbed.

Anuj Puri

Chairman, ANAROCK Property Consultants Pvt Ltd

Western Indian markets including Mumbai Metropolitan Region (MMR) and Pune have remained the most vibrant residential markets among the top seven cities. Both sales and new housing launches in these two cities have seen significant growth over the last few years. This trend continues at present despite a price rise.

ANAROCK’s data trends show that MMR and Pune witnessed the highest sales in the first nine months of 2023 with nearly 111,300 and 63,500 units sold respectively. Together, they accounted for 50% of the overall sales across the top seven cities.

Likewise, new launches in the two cities were also the highest. MMR and Pune witnessed a new supply of approximately 116,900 and 65,400 units respectively, together accounting for 56% of the overall new supply shared across the top seven cities.

Considering recent trends, it is likely that both cities will see more growth in the ongoing festive quarter. MMR is likely to see between 25% and 30% yearly growth in residential sales in 4Q2023 as against the corresponding period in 2022 while Pune is likely to witness 35% to 40% yearly growth in the same period. Back in 4Q2022, MMR sold approximately 28,420 units while in Pune, 16,550 units were sold.

This robust demand has led developers to launch several projects in the period because many before Covid-19 were holding on to their land parcels. We are also seeing significant new supply by branded and listed developers in recent times and buyers who now prefer branded products are coming forward to take the plunge. Therefore, housing sales and new supply continue to be robust in both cities.

The most attractive segment to investors in 2024 would be the luxury segment within the residential sector, which has performed remarkably well post-pandemic across the top seven cities. Both demand and new supply has gone up significantly post-Covid-19 and it continues even today. Latest ANAROCK data shows that out of 116,220 units launched in 3Q2023 in the top seven cities across various budget categories, approximately 27% (around 31,180 units) were in the luxury category. This is the highest quarterly luxury supply entering the market in the last five years.

Back in 3Q2018, the supply share of luxury housing was just 9% of approximately 52,120 units launched across budget segments then, or just 4,590 of luxury homes. Therefore, for long-term investors, the luxury residential segment can be a good bet provided the project is in a good location and by a good builder. Investors can also think of taking positions in commercial and retail through the various real estate investment trusts (REITs). Currently, there are three REITs in the commercial sector and one in the retail sector.

In terms of challenges, increase in interest rates could be one of the major hindrances for the property market’s growth in the near future. Another factor that could also pose a challenge is an unfavourable result in the upcoming general elections in 2024. In case of any instability, the property market — which usually depends on all-round positive sentiments — may face some challenges.

Yunus Karim

Head of research, JLL Indonesia

Post-pandemic, Indonesia’s economic growth rebounded to around 5%. In tandem with this, the Greater Jakarta property market showed activity in 2023. This year also marked the initiation of two significant public transport developments — the first LRT in Greater Jakarta and the Jakarta-Bandung High-Speed Train.

Despite the implementation of cost-saving measures and new workplace strategies by tenants, the Grade A office sector has consistently preserved a positive, albeit limited, net demand. The retail market also witnessed growth, with high occupancy rates in prime malls spurring an increase in rents. Following the previous trend, condominium sales in Jakarta continued to centre primarily on existing, affordably priced units.

Notably, there was an increase in demand for modern warehouses in Greater Jakarta among the automotive sector and electric vehicle (EV) vendors, followed by the manufacturing, fast-moving consumer goods (FMCG) and pharmaceutical sectors. Moreover, international visits to Jakarta have increased, bolstered by improved regional and global air connectivity, which in turn positively impacts hotel occupancy rates and the average daily rate.

The government holds an optimistic outlook for a similar economic growth trajectory for the coming year. Infrastructure development to enhance accessibility remains a top priority. This commitment is likely to stimulate progress across all property sectors. Amid a gradually improving demand and an anticipated dip in new supply, the office market seems poised to continue benefiting from the “flight-to-quality” trend, ensuring the overall occupancy rate remains stable.

The retail market, particularly prime malls, is projected to remain healthy, powered by the F&B, fast fashion, beauty and entertainment sectors. However, incoming new supply might slightly hamper the overall occupancy rates. Apart from affordability, condominium projects situated in premier locations with limited competition are anticipated to receive a stronger market response. This prediction also extends to those within mixed-use developments that offer the convenience of proximity to public transport despite the overall subdued demand.

The landed housing sector is expected to retain its resilience, boosted by end-user buyers. The government’s recent announcement of a value-added-tax (VAT) waiver on completed or nearly finished residential purchases is expected to stimulate demand, echoing the trend observed in 2021 and 2022.

Meanwhile, increased competition may be witnessed in the modern logistics warehouse market due to the coming influx of new supply, especially in the eastern region of Greater Jakarta. Nevertheless, a stable demand is anticipated, with third-party logistics (3PLs) as a significant driving force. At the same time, industrial land should maintain its appeal as FMCG manufacturers and EV players continue to establish their facilities.

While each property sector might see some fluctuations in activity, 2024 is shaping up to be a political year for Indonesia. Historically, businesses, including the property market, have tended to take a watchful stance leading up to election day. Yet, as of 3Q2023, activities across all property sectors remain observable. Indeed, the future holds exciting possibilities for Indonesia’s real estate market.

Amous Lee

CEO and partner, FM Investment

The two top-performing cities in 2023 were Tokyo and Osaka. Their residential property prices continued to rise.

In the Tokyo metropolitan area, existing condominium prices surged by 6.8% in 1H2023,  and new condominium prices doubled, while existing detached house prices increased by 4.7% year on year (y-o-y).

In the Osaka metropolitan area, existing condominium prices rose by 10.5%, while new condominium prices dipped slightly, and existing detached house prices increased by 9.4% y-o-y.

The residential construction activity within these two major Japanese metropolitan areas has shown signs of stabilisation, suggesting a balanced growth in the real estate sector. These developments reflect the dynamic and evolving nature of the housing market in these prominent urban centres.

The outlook of Japan’s real estate market appears exceptionally optimistic to us, driven by a combination of factors. For example, favourable lending terms, abundant liquidity and stability of rents with attractive yields. They are all contributing to the industry’s growth.

Additionally, the continuity of friendly monetary policies further bolsters the market’s interest and attracts an influx of foreign investors, including those from Singapore, who have been very active in acquiring residential properties, hotels, commercial spaces and other real estate assets.

Since the Covid-19 border ban was lifted in October 2022, Japan, especially in Tokyo and Osaka, has witnessed a significant increase in international visitors for revenge travel. This strong travel surge drives a huge need for bed and breakfast (BNB) accommodation owing to a limited supply. This trend is expected to continue increasing throughout 2024.

Moreover, with the upcoming World Expo in 2025 and the eagerly anticipated integrated resort set to debut in Osaka by 2030, these forthcoming mega-events are expected to trigger a significant boom, not only in the hotel industry but also in related real estate products like BNB, creating fresh opportunities and vibrancy in Japan’s real estate market.

We foresee the BNB market in Osaka will see tremendous growth in the coming year because, unlike other regions in Japan, Osaka allows lodging services to operate year-round, offering promising rental returns for investors.

In general, we believe that Japan’s real estate sector is navigating a complex landscape and the trend is likely to continue in the near term.

Nonetheless, while the declining household numbers in Japan present a challenge to the overall growth of the country’s real estate market, the increasing ageing population and lesser job opportunity in smaller cities may help to drive property transaction in the bigger city, particularly in Osaka and Yokohama, where people have been migrating for work and settlement opportunities. This trend, in turn, is expected to contribute to the city centre’s younger population growth, as well as growth in real estate prices.

In addition, Japan is acknowledged for its internal stability, where it is consistently ranked among the world’s most politically stable countries, and it is a well-regarded choice for secure business or work-related travel, which is expected to continue to attract international property buyers and foreign direct investment.

NEW ZEALAND

Gavin Read

Head of research, JLL New Zealand

The property market in Auckland and Wellington, New Zealand’s largest cities, performed better than expected in 2023, despite various global and local challenges such as geopolitical issues, high inflation, rising interest rates, and low consumer and business confidence.

Auckland, being the largest city in terms of gross domestic product and population, saw strong demand and rental growth of 14.8% in prime industrial real estate. The city’s limited supply of new industrial land and higher construction costs have resulted in higher rents.

Wellington, the country’s capital, also experienced low vacancies and higher construction costs, leading to increased rents in the industrial sector. With approximately 50% of office occupiers being in the public sector, Wellington’s office market remained steady with minimal vacancy and rental growth of 4.3%.

Both cities saw a flight-to-quality in the office sector, especially in Auckland, where its premier office towers had low vacancy rates of 2.1%, while prime office rents grew 6.8% annually as at 3Q2023.

The residential market also showed signs of stabilisation, with median house prices in Auckland and Wellington increasing by 10.3% and 3.9% respectively since January 2023, after falling from their highs at end-2021.

In 2024, both the Auckland and Wellington office sectors are expected to see steady rental growth, particularly in quality prime locations, with minimal softening in vacancies.

The industrial market in Wellington is projected to have little change in rentals and vacancies. A strong pipeline of new developments in Auckland is anticipated to drive further rental increases to provide suitable returns for owners and investors.

The country’s annual net migration, with forecast of a positive net migration of over 110,000, will underpin continued growth in shopping centres, bulk retail and residential assets (both owner-occupied and investment). However, challenges will occur to meet the growing demand for residential properties due to potential supply shortages.

While quality industrial properties are expected to be popular among investors in 2024, there is also a growing demand for specific retail assets in New Zealand due to the country’s comparatively low per capita number of shopping centres.

Additionally, as international travel resumes to pre-pandemic levels, hotels could continue to grow as an attractive investment option in 2024.

The government’s plan to relax the residential investment accounting treatment is likely to encourage increased investments, even with potentially lacklustre returns. New Zealanders’ strong interest in housing and the potential for future capital gains contribute to the attractiveness of the residential market.

The main factors that could affect the growth of the property market in New Zealand include inflation levels and interest rates. If inflation remains higher than expected, resulting in longer periods of higher interest rates, it may hinder future investments in both residential and commercial properties.

On the other hand, should net migration continue above a 2% growth, there will be a need for additional accommodation across many property sectors, which would encourage further growth and investment.

Paulo Silva

Head of country, Savills Portugal

Despite being highly resilient, the Portuguese real estate market felt the pressure of various economic constraints.

In the Lisbon office market, we had come off a record year in 2022, and it was expected that in 2023, we would not see the same levels of performance, primarily due to the current scarcity of quality supply. We are witnessing an increasing flight to quality, driven by sustainability and ESG regulations, which is reflected in the demand. On the other hand, the Porto market is set to close the year on a positive note.

In the residential real estate market, we observe two distinct realities. On the one hand, there is a continued interest from foreign investors in developing projects in cities like Lisbon and Porto, as well as in other regions such as Comporta and Melides. On the other hand, we have the housing market targeted towards lower-income segments experiencing a widespread housing crisis, largely driven by the recent increase in interest rates and stricter conditions for obtaining bank credit. Despite the contrasting situations, it is important to highlight that overall market performance remains steady.

The latest forecasts from various international financial institutions indicate a widespread slowdown in the European economy in 2023, with Germany heading into a recession, which consequently has ripple effects on all its economic partners. Moving into 2024, the projections are slightly more optimistic, with an expected growth of 1.3% in the eurozone, but still below what was forecast in the second quarter of 2023. With this in mind, and with ongoing uncertainty regarding the ceiling that interest rates may reach, the first half of 2024 is still expected to be marked by cautiousness and careful decision-making.

A greater diversification of portfolios is the domain strategy adopted by investors looking to balance their level of exposure, directing their investment towards alternative segments such as residential, senior living, healthcare and student housing.

Also, in line with the trend for 2024, we will witness an increasing focus on ESG issues and decarbonisation. This shift towards sustainable investing will lead to a diversification of investment opportunities across different sectors.

If this macroeconomic scenario does not settle, taking also into account the tensions and dangers generated by the ongoing conflict in Ukraine and more recently the Middle East, investment decisions will continue to be cautious in a wait-and-see expectation. The rising financing costs, along with the impact on investors’ return requirements, will continue to persist.

However, despite the less favourable macroeconomic context, Portugal enjoys multiple attractive factors, starting with an occupational market that maintains its dynamism across all real estate segments. The new projects in the pipeline, for which a significant percentage of lettable area is already pre-leased, reflect the current market dynamics. With its ongoing attractiveness and potential for growth, Portugal remains an appealing destination for those seeking to diversify their investment portfolios.

Desmond Sim

CEO, Edmund Tie & Company (SEA) Pte Ltd (Singapore)

For year 2023, interest rates were the major hurdle that led to a dearth of commercial transactions as compressed yields across office and retail sectors led to negative spreads for would-be investors.

The Singapore residential sector still remained relatively active. Generally, the residential market can be classified into three geographical regions.

Overall, year-to-date 3Q2023, the Outside Central Region (OCR) saw the highest share in terms of sales volume at 42% (6,054 units), while Rest of Central Region (RCR) and Core Central Region (CCR) took up the remaining share at 39% (5,561 units) and 20% (2,828 units) respectively. This is due to the elevated interest rates climate coupled with the tighter financing climate that weighs on housing affordability, as demand gravitated towards the more affordable price quantum brackets in the OCR segment. Some rotation of demand from the CCR and RCR segments to the OCR segment could also be observed post-April 2023’s cooling measures, due to the relatively more palatable price quantum in the OCR segment following the additional buyers stamp duty (ABSD) hikes for foreign purchasers. As a result, OCR private home transaction volumes climbed by about 31% q-o-q to 2,337 units in 3Q2023, following 1,779 units in 2Q2023.

As for the residential property market forecast in 2024, we estimate that new sales will increase to 7,000 to 8,000 units from 6,500 to 7,500 units in 2023. Secondary sales are estimated to be 12,000 to 14,000 units from 10,000 to 11,000 units last year. Price growth is estimated to dip to about 2% from 3% to 4% previously.

The real estate sector most likely to appeal to investors in 2024 is the industrial sector due to its relatively higher yield as compared to other asset classes. As the Singapore residential market remains highly regulated and controlled by property measures, some investors may also opt to diversify their portfolio by investing in other asset classes such as industrial properties to minimise the impact of the cooling measure and maximise returns, as industrial properties are not subject to ABSD.

Industrial property owners also tend to sign long leases with tenants, providing greater stability in terms of regular predictable income streams. The growth of e-commerce and focus in food logistics in recent years have also helped propel demand for industrial properties such as warehouses, which would provide potential upside for capital appreciation in the longer term. However, investment into this sector is often lumpy and is highly regulated by the authorities.

Strata assets and shophouses have been attractive asset classes to investors and this interest will likely be sustained going into 2024 amid limited supply, following the Urban Redevelopment Authority’s (URA) imposition of restrictions on future strata subdivision of commercial assets in select parts of the central area. Given the palatable quantum of these assets and the omission of any ABSD in addition to consistent leasing demand from SMEs and family offices, investors would likely be drawn to the healthy rental yields and the lower capital outlay of these investment assets.

Some main factors that would influence the property market’s growth include interest rates, government policies and economic outlook. For instance, an escalation of interest rates would slow down housing demand, while government policies such as cooling measures would dampen market sentiments and soften home buying demand. A positive economic outlook would encourage consumer spending, which will in turn encourage the property market’s growth.

Yoona Choi

Managing director, Knight Frank Korea

The primary property market activities occur predominantly in Seoul, where the top three major districts are Yeouido Business District (YBD), Gangnam Business District (GBD) and the Central Business District (CBD).

In 2023, South Korea’s commercial real estate transactions experienced a persistent decline due to heightened economic uncertainty and interest rate escalations. These factors notably impacted the market size for commercial property investments, particularly offices and retail spaces within the CBD, GBD and YBD. The cumulative transaction volume hit a five-year low, dropping to half of the previous year’s levels.

Nevertheless, despite the decrease in investment demand, the leasing market remained resilient. Remarkably, office vacancy rates in Seoul’s major districts reached historic lows of around the 1% level, while rental prices exhibited steady growth, maintaining stability in the leasing market.

Despite the challenging conditions in the investment market, the leasing market has remained robust and it has attracted significant investor attention towards prime assets, resulting in a notable 2% to 30% increase in the asset values of major office spaces in Seoul compared to the three years before.

Looking ahead to 2024, Seoul’s three major districts are expected to maintain low vacancy rates due to increased demand for office spaces driven by the integration of large corporate headquarters and financial institutions.

New large-scale supply of commercial properties is anticipated due to delayed redevelopment projects amid a high-interest rate environment and economic uncertainties until 2023, but most of this new supply is concentrated in Seoul’s outskirts, raising concerns about a potential slowdown in the suburban leasing market. Conversely, limited new supplies forecast resilience in the leasing market for Seoul’s major districts in 2024. Additionally, a decrease in domestic investors’ interest in overseas investments might refocus investment demand towards prime assets within Seoul’s major districts.

An anticipated narrowing of the property price gap in Seoul’s major districts potentially leads to a slight downward adjustment in asset values across the sector in 2024. This adjustment could lead to increased transaction volumes.

As for the most attractive real estate segment for investors in 2024, the office market’s sustained supply shortage is expected to maintain a landlord-favourable market, making it the preferred investment sector.

Conversely, the investment preference for logistics might decrease due to increased uncertainty within the market amid substantial supply and a slowdown in online market growth, leading to more selective investment activities based on location and quality of assets. Moreover, while demand is on the rise, recent government restrictions on power supply have led to constrained availability in data centre assets. Consequently, there is an anticipated surge in investment preference for these constrained assets, alongside an expected increase in investment demand for senior housing due to South Korea’s increasing ageing population.

Factors hindering the property market’s growth include uncertainties arising from financing costs surpassing returns, concerns about slow economic growth, and anticipated policy changes preceding next year’s by-elections, leading to a contraction in domestic investment.

The available loan size and the stance of lending institutions appear to be the most prominent risks in the real estate market. However, with the anticipation of a future period of interest rate stabilisation, it is expected that the increase in investment volume within the domestic market will be fuelled by capital gains from the previous appreciation of assets, facilitating a rise in investment capacity.

The upcoming by-elections are anticipated to significantly influence the government’s direction of policy and consequently the investment market. However, resolution of external uncertainties might facilitate smoother decision-making for investors, leading to a robust investment market.

Cameron Ramsey

Capital markets research & strategy director, JLL EMEA & UK

Investment markets in the UK have been subdued throughout the year, with transaction volumes at around half of historic average levels. This has been predominantly driven by uncertainty around pricing created by rising and volatile interest rates, which have pushed cap rates up and capital values down. This has been broadly uniform across all sectors, although offices have been the most severely impacted due to the added pressure of hybrid work.

These pressures are slowly easing as the interest rate outlook stabilises and the long-term role of the office becomes clearer, but sentiment remains weak. Logistics and living sectors saw confidence return more quickly due to supportive structural trends, but with volumes coming off a high base from previous strong years. Retail is coming off a lower base following almost a decade of decline, with price shifts less dramatic and activity less reduced.

Leasing markets have been more resilient. In terms of office take-ups, we see around 15% of long-term averages for both Central London and the Big 6 regional office markets. Overall vacancy rates are high but incoming supply is low, creating a highly polarised market where the best space is enjoying strong performance with high prime rental growth, while older stocks are falling in value. Industrial leasing markets also remain fairly buoyant given continued supply/demand imbalances and the growing importance of supply chains.

In terms of the UK housing market, we have seen a drop in transactions and prices in London and across the UK in 2023. Transactions nationally have fallen by around 19% compared with 2022 and prices are down by circa 5% from the 2022 peak.

Moving forward, we expect to see gradual, incremental improvements in sentiment and activity as values stabilise and confidence slowly returns to the market. Interest rates are expected to remain at current elevated levels, but with asset management and operational performance coming into greater focus, strong returns will be possible for the right assets and portfolios.

In the housing market, we forecast that prices both across the UK and in London will see modest falls of 6% and 4% respectively. We expect prices to bottom out in 2024, down a further 2% by end-2024 before recovering from 2025. Meanwhile, we expect rents will increase by 5% nationally and 5.5% in London in 2024, with rents up 22.8% nationally in the next five years.

The sectoral trends seen over recent years are likely to continue, with living and logistics as the most popular and most broadly resilient. Office and retail will provide good opportunities for outperformance but with greater risk associated, meaning stock selection will be increasingly important.

Emerging growth sectors include life sciences and data centres, and there is a huge weight of capital looking to access these. They are likely to remain fairly modest in size compared to the major sectors, but performance will likely be strong where good opportunities do arise.

The undersupply of sustainable new offices and logistics space in key locations will continue to drive outperformance for the assets, while living and residential supply shortages are often even more acute.

We expect that the higher mortgage rates will hamper activity in the housing market over the next six to 12 months, with transactions expected to be 20% lower in 2023 than 2022. However, we are confident that activity will increase once rates start to fall, currently forecast from mid-2024 onwards.

Wei Min Tan

Licensed associate real estate broker of the Castle Avenue Team, R New York

Manhattan, New York, is often deemed the most expensive property market in the US. A centre for finance and technology, Manhattan is also viewed as a safe haven for asset diversification by global high-net-worth individuals. In 2023, Manhattan property experienced a significant downturn due to the sharp increase in mortgage rates. Sales volume dropped between 20% and 40%, and prices came down about 5% to 8%.

Overall, the US property market in 2023 was characterised by a general slowdown, particularly in cities with high concentrations of luxury properties and buyers reliant on financing. The rise in mortgage rates was a significant disruptive factor, reducing demand and putting downward pressure on prices.

Fortunately, the Manhattan property market is expected to stabilise in 2024. Interest rate hikes have stopped and mortgage rates have even started decreasing. Buyers have to accept the new normal mortgage rates and if that happens, the market should bounce back.

Commercial real estate overall has suffered significant devaluation because of Covid-19 — retailers closing down and reduced office demand due to work-from-home. On a brighter note, Manhattan has consistently been a desirable place to live, driving up the demand for residential condominiums. Even with rising interest rates, demand for Manhattan condos is expected to remain strong in 2024.

This is partly due to the limited supply of condos in Manhattan, at only 10% of total residential inventory, which helps to support prices. Several other factors that contribute to this resilience are continued strong global demand, resilient prices, rental income potential and diversification sought by global investors.

Moreover, condos in Manhattan can also be a good source of rental income as 75% of Manhattan residents are renters. Rents in Manhattan are high and there is a strong demand for rental properties, which is why global investors buy Manhattan condos to rent out. According to an October rental report, the median rental price of US$4,195 increased by 4.6% compared to the prior year.

Additionally, Manhattan’s vibrant culture, job opportunities and amenities continue to attract a large and growing population of professionals, further fuelling demand. Google expanded to a second Manhattan campus, paying US$2.1 billion for the St. John’s Terminal building. Meta (Facebook) is now the largest corporate tenant in Manhattan.

Nonetheless, the mortgage rate increases in 2023 are expected to have a significant impact on the Manhattan property market next year. Approximately 50% of Manhattan property buyers require financing, while the other 50% are cash buyers. In the past year, the market has been dominated by cash buyers, who are not affected by interest rates. However, as mortgage rates decrease, it is expected that demand from financed buyers will increase. This could lead to an increase in overall demand and prices.

There are a number of factors that could hinder the Manhattan property market in 2024, including economic uncertainty and inflation. However, there are also a number of factors that could encourage the market’s growth, including limited supply, strong demographics, growth in finance and tech, as well as global appeal.

David Jackson

Principal and CEO, Avison Young Vietnam

The housing segment witnessed a year of ups and downs for homebuyers and investors. New supply, including condominium and landed properties, decreased, while primary selling prices remained on an upward trajectory although this was somewhat balanced out by preferential policies introduced towards the end of the year.

The office and industrial segment recorded stable growth, with an increase in new supply and relatively high occupancy rates, indicating that the economic initiatives of the Vietnamese government were taking effect. As the busiest economic and financial hub in Vietnam, Ho Chi Minh City (HCMC) experienced a surge in demand especially from large foreign enterprises in banking and finance, pharmaceuticals and consumer sectors. This resulted in a rapid development of high-end offices with qualified green and sustainable criteria.

In Hanoi, the industrial segment stood out as the strongest performer of the year. Rents steadily rose, and new supply continued to be added as more industrial parks were built in satellite areas and industrial provinces, forming a network of manufacturing facilities in the northern key economic region.

The retail real estate sector saw mixed performance. Townhouses struggled due to high rents and the shift in consumer behaviour post-pandemic, but commercial centres, shopping malls and supermarkets performed well, benefiting from modern shopping models to leverage strong local purchasing power.

Property investment projects in Vietnam saw limited activities in 2023 due to the over-reliance on loan and bond capital of many domestic businesses.

Overall, Vietnam has a demand-driven real estate market with much room for growth. Demand for real estate rentals and purchases remains strong. However, market sentiment is temporarily subdued due to uncertainties in interest rates and pricing.

Market correction is expected to continue in 2024, and the new legal framework on land, housing and real estate business in Vietnam will stabilise the market and investment environment. In the housing market, we expect prices to continue to self-adjust until the expectations of both buyers and sellers align.

While the hospitality sector (hotels, condotels, resort villas and serviced apartments) should gradually recover following the momentum of the tourism industry, it is too early to say whether these properties will attract strong interest as in 2019. We expect the industrial, office and retail segments to maintain positive growth, and become more competitive, pushing developers to focus more on asset quality and diversity.

In general, we anticipate foreign investors will continue to seek suitable land resources for asset development in almost every segment, ranging from residential and retail to hotels and industrial, catching up with the economic recovery as well as key national infrastructure development. Segments aligning closely with societal needs are likely attractive to investors. Meanwhile, domestic developers tend to opt for the residential segment.

In terms of challenges, the decline in domestic economic health directly impacts people’s income, savings, and business cash flow, and the spill-over effect from this can be felt across real estate segments. Vietnam strives for an upgrade from “frontier market” to “emerging market”, which then would help to attract more foreign investments. Until then, more efforts are needed to lower the barriers of legal provisions and land readiness to further encourage them to invest in real estate in Vietnam. Other factors related to land funds and land use terms can also pose challenges for newcomers as commercial land type (for industrial facilities or commercial use) in Vietnam has a limited use term.

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