This article first appeared in City & Country, The Edge Malaysia Weekly on February 12, 2024 - February 18, 2024

The intention to sell among real estate investors in Asia-Pacific reached a record high, with more than 40% looking to dispose of their assets to realise returns and repay debts, according to CBRE’s “2024 Asia Pacific Investor Intentions Survey” report. Investors with the strongest intention to sell are from Australia, Singapore and Hong Kong.

The survey was conducted among 510 Asia-Pacific-based investors in November and December 2023. They comprised developers, owners and/or operators, high-net-worth individuals, private investors and/or family offices, real estate investment trusts (REITs), insurance companies, private equity funds, pension funds and real estate funds.

Meanwhile, those who displayed the strongest intention to buy assets in 2024 are domestic investors in South Korea despite the high borrowing costs. These investors are targeting core office assets with strong rental growth prospects. Conversely, investors in Hong Kong exhibited the weakest intention to buy assets, due to the significant decline in capital value in their home market.

“Negative carry deepened and investment appetite shrank by half, hitting a 15-year low as financing costs reached a 22-year high,” said CBRE. However, it foresees the Hong Kong economy recovering in 2024, backed by stronger growth in mainland China, while potential interest rate cuts will improve investment sentiment.

Investors in mainland China showed a weakening intention to buy assets despite measures by the People’s Bank of China and the China Banking and Insurance Regulatory Commission, which include interest rate cuts to support cash-strapped developers and boost residential market sales.

According to the report, Japan is investors’ most preferred country for cross-border real estate investments. Tokyo, Osaka and other regional cities are on investors’ radar screens for their low-cost debt and stable income streams.

Other preferred countries are Singapore and Australia, in second and third place respectively.

“Singapore saw a sharp increase in investors indicating a preference for value-added strategies in 2024, as core and core-plus strategies are unable to provide desired returns. In Australia, investors are largely focusing on Sydney while adopting a more selective view towards regional cities,” said CBRE.

For the emerging market in Asia-Pacific, India’s Mumbai and Delhi are attracting the interest of long-term investors who seek to expand their real estate exposure in the world’s fastest growing economy.

The majority of investors in Asia-Pacific indicated their intention to increase or maintain their real estate allocations, especially among Australian and South Korean investors.

“With further price adjustments expected in1H2024, more than half of Australian and Korean respondents said they would look to increase their allocation to real estate. Most public report filings for these markets indicated that the overall book value of commercial real estate dropped 5% to 10% over the course of 2023,” said CBRE.

Investors in Singapore, Japan and Hong Kong indicated that they would maintain their real estate allocations in 2024.

“While Japan and Singapore have seen minimal changes in asset pricing during the current cycle, uncertainty surrounding income returns for office and industrial assets in Hong Kong will weigh on real estate investment decisions in this market over the next 12 months,” said the report.

Investors in mainland China exhibited a mixed attitude on their real estate allocation for 2024 as most investors expect distressed opportunities to emerge in the next 12 months.

Fears of a recession and further policy rate increases ranked as the top concerns among investors. However, the worries around these issues have weakened significantly compared with CBRE’s 2023 survey.

While economic growth for most markets in Asia-Pacific is forecast to fall below trend, greater certainty surrounding borrowing costs and the prospect of interest rate cuts in 2H2024 in many global markets have eased concerns among investors. Besides that, the mismatch in pricing and escalating construction and labour costs remain a concern among investors as well.

“The mismatch in pricing expectations between buyers and sellers remains a major concern for investors. While repricing occurred in most markets and sectors in Asia-Pacific in 2023, investors retain the belief that some further price adjustments are required for investment volumes to pick up in the next six to 12 months,” said the report.

“Escalating construction and labour costs ranked high on investors’ list of challenges in 2024. This issue is especially pertinent in Japan, where Turner & Townsend data show overall construction costs for commercial real estate have risen by more than 30% since the beginning of 2020.”

Investors in Asia-Pacific have turned to value-added strategies as the preferred investment in 2024 to achieve attractive returns, particularly by focusing on distressed assets and debt solutions to meet their investment objectives. A value-added strategy is when an investor purchases an existing asset with in-place cash flow but is not operating at its full potential.

Meanwhile, the industrial sector continues to be the preferred sector for investment in 2024 and followed by the office sector. However, these two sectors have experienced a slowdown in interest since 2023.

CBRE expects markets that are forecast to register stronger rental growth over the next 12 months, such as Singapore, Sydney and selected Indian cities, and properties with strong lease covenants to be most sought after by investors.

Meanwhile, the residential sector will continue to receive growing interest in 2024.

“The living sector is set to attract more capital in 2024, with build-to-rent and build-to-sell attracting strong interest. Despite the prolonged economic uncertainty, the living sector remains resilient, with ongoing structural change continuing to underpin demand, although the size of the market remains relatively small,” said CBRE.

The report pointed out that build-to-rent developments will be the primary focus of investors from Japan, Australia and mainland China. Meanwhile, build-to-sell solutions will be in demand among investors in Hong Kong and Taiwan.

Although the office sector is experiencing a weakening demand, CBRE foresees that high-quality prime offices in central business districts will continue to be popular as there is limited future supply while there is a strong demand from corporates who seek to create attractive working environments in an attempt to lure employees back to the office.

Beyond the residential, industrial and office sectors, a preferred investment in terms of alternative assets in 2024 is healthcare-related property, said the report. This includes life sciences and medical offices.

For the more mainstream build-to-rent and built-to-sell assets, investors displayed an interest in various types of living sector properties such as student accommodation and retirement living.

“Student accommodation, particularly in markets with high levels of migration such as Australia, continues to gain in popularity. Retirement living in markets with ageing populations such as Japan and South Korea, is also seeing stronger interest,” said the report.

For the cold-storage facilities, investors are cautious in this sector, given the slowdown in e-commerce growth and substantial new supply.

With a growing demand for green buildings and compliance with environmental, social and governance (ESG) criteria, the survey found that 60% of investors, which include private equity funds, real estate funds and REITs, have the intention to retrofit existing buildings to be sustainable or ESG-compliant.

“While the increase in construction costs continues to influence refurbishment decisions, the growing volume of evidence illustrating the level of cost saving resulting from sustainability-related retrofitting, combined with an increasing amount of carbon emission goal setting, is resulting in landlords being more active in pursuing green initiatives,” said CBRE.

The other 40% of investors indicated plans to increase renewable energy generation or install electric vehicle (EV) chargers in their assets. The report also highlighted that EV sales globally reached 10 million in 2022 and Asia-Pacific contributed two-thirds to this figure.

Moreover, the call for ESG-compliant buildings has made the flight-to-quality and flight-to-green trends more prominent. Therefore, the newer and premium office buildings in Asia-Pacific are well positioned to meet demand as companies look to create high-quality workspaces to attract top talent.

With the growing need for ESG-compliant buildings, Australia and Singapore are the top two countries in Asia-Pacific for green building adoption with new buildings required to be green-certified.

“With green buildings set to become the norm across the region along with the global commitment to achieving net zero emissions by 2050, investors are strongly advised to integrate ESG criteria into their investment decisions,” said the report.

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