The 2023 outlook for Asia Pacific real estate, in one word, appears dramatic. In progress is a reset across markets, that will continue well into 2023.
Against strong fundamentals, the sentiment among real estate investors today is much like cautious anticipation of steady growth and healthier returns in the longer term starting the latter part of 2023.
Real estate, most certainly, is not immune to market volatility, yet we see investors highly conscious of some of the advantages the current situation presents in the region. There’s consensus that for those with the right game plan and resources, there are some exceptional opportunities in Asia Pacific.
Businesses are accordingly realigning plans and investors are sharpening strategies to pick the right markets and assets for robust returns this year. In doing so, it’s crucial to first identify the underlying forces shaping real estate in 2023.
1. Inflation, interest rates and world economics
“Despite uncertain economic conditions, there remains a significant amount of unsatisfied capital looking to be placed in real estate. Many global investors are underweighted to APAC markets including Australia, Korea and Japan, that will be major beneficiaries of this trend. Moreover, once interest rates stabilise and lenders price debt with more predictable spreads, investment activities will potentially start picking up.”
Chief Executive Officer | Australia
2. Asset re-pricing
As property markets come to terms with the phase of slower investment activities, a pricing reset across markets is underway in the face of interest rate hikes. This is driving a shift in investors' strategies, with capital values expected to correct by up to 30%.
The shock the market is presently feeling can largely be absorbed, as the current market dynamics do not echo the past financial crisis when loan-to-value levels were much higher than today. These conditions, we believe, are creating new opportunities.
“Now is a time of opportunity. If investors pick their markets, assets and strategies carefully, this is a good time to capitalise. Cash is king and equity-driven investors, notably the private buyers, can bid for assets in an environment with limited buy-side competition. They are typically immune to market forces and will continue to be active despite market flux. Markets with safe-haven status will be active and locations with deep, embedded levels of private capital will prosper.”
Managing Director, Asia Pacific | Global Capital Markets
3. Regional resilience
Asia Pacific remains resilient with largely stable capitalisation rates, gradually steering towards a sustainable recovery. Despite vast and complex regional differences across property markets, we see investors highly keen on the 3Ls ― logistics, living and life sciences ― as demand for these businesses continue to grow globally.
Asia Pacific is a strong consideration for longer term real estate exposure given its relatively faster pace of economic growth, burgeoning consumer class, rapid urbanization, along with its tech-leadership in e-commerce, artificial intelligence, data analytics, and communication networks.
Investors’ preference in the region is largely the big cities, signalling choice for known markets that potentially deliver value during a pricing reset. Japan is on investors’ 2023 priority list for office, industrial and multifamily asset classes, driven by the weak Yen and the country’s comparatively benign inflation outlook. Australia, Singapore and South Korea are also seen as front runners in luring investors.
“Asia Pacific economies are unlikely to fall into recession and potentially, after a near term blip, the region will continue to outperform in 2023. Alternative markets will be reviewed but gateway cities will continue to be safe choices for investments and larger capital markets transactions. Occupiers, as well as owners and investors across markets are already leading with ESG focus to future-proof their strategies. Increased industrial activity away from China with intentions to diversify, will drive more capital flow into the ASEAN region.”
Managing Director Emerging Markets | Asia
4. Technology-led structural changes
Across the globe, people have embraced new ways of shopping, working, living and dining, and moving forward, technology will continue to underpin further social changes. In real estate, technology has led to a quicker evolution of how owners interact with occupiers, real time facilities management, and tools that enhance productivity and maximise user experience.
In fact, technology has impacted each sector differently. While for industrial, it allows operational efficiencies against rising costs, for retail, online platforms will continue to evolve with greater emphasis on click-and-collect.
For office, the opportunities are unlimited as technology allows occupiers to be highly creative and flexible with their workplace and workforce strategies.
“Technology will continue to shape the way we work and where we work. Today, we are witnessing a trend towards ‘hotelisation’ of offices. Workplaces are morphing into unique destinations backed by Artificial intelligence, Internet of Things, Virtual reality among other technologies that integrate services with amenities, enabling on-demand experiential spaces. Going forward, owners will invest more in technology.”
Chief Executive Officer | India
Managing Director, Market Development | Asia
5. Defensive assets on investors’ priority list
As investors pursue defensive assets strategy, office and industrial and logistics (I&L) real estate are most in demand in 2023. Colliers’ 2023 Global Investor Outlook reveals that beyond office and I&L, multifamily now notably outpaces retail and hotels, and a good number of investors are interested in specialised assets (alternatives). Big-box warehouses are now more in demand, compared to last-mile distribution, and is the top I&L pick in 2023. Also, there’s higher interest in industrial park/manufacturing facilities and container terminals.
“In APAC, the next few months will lead to price discovery and repricing, as market players reassess their portfolios amid greater uncertainty. The search for high-quality and inflation-proof assets will intensify in the year ahead as industry players step ahead with caution keeping eyes on the macro trends.”
Chief Executive Officer | India
Managing Director, Market Development | Asia
6. Sustainability fueling flight to quality
There’s growing emphasis investors are placing on environmental, social and governance (ESG) criteria and ratings of real estate. This is not just for regulatory and reputational reasons, but increasingly in response to occupier demands for experiential workplaces and to also balance out asset operational costs over the longer term.
Investors are focusing on assets with strong sustainability characteristics, with expectations that these will command a premium. Non-compliant assets will be increasingly confined to discounted territories and targeted for redevelopment, as disposal and acquisition strategies are activated.
“Despite slower investment decision making, and defensive underwriting, the importance of ESG in real estate will only grow in 2023. Previously, the sometimes-low ROI of ESG projects dissuaded investments, but as most companies prepare to face the global economic challenges in the year ahead, every dollar spent must be justified. Today, the lower operating costs of ESG projects are becoming a draw, helping both occupiers and landlords save money while enhancing efficiency. We recommend taking a flexible approach, as the market is changing quarter-by-quarter.”
Managing Director | China
Investors and occupiers should keep eyes on new opportunities, while streamlining decision making to be able to react immediately to any rebound.
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Read more from our Expert Talks series:
- Expert Talks | Revitalising Cities
- Expert Talks | Investment opportunities shine in APAC
- Expert Talks | Real estate in the metaverse
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