Yields remained relatively flat across the region, amidst a rising interest rate environment.
Yields stayed relatively flat across Asia Pacific in Q2 2022, although the general sentiment is shadowed by a rising interest rate environment. Limited deals were completed with no major benchmark transactions in the past quarter to evidence the price and cap-rates movement in most markets.
Prices for high-quality assets in core locations are expected to hold.
Key Highlights in Q2 2022:
- The industrial sector remains strong in China, mainly driven by logistics and warehouses. Online shopping continues to propel demand in the logistics segment and contributes to the contraction in yield. A similar situation has occurred in Tokyo.
- Office and retail sectors were stable for Beijing and Shanghai, as no significant transactions were recorded resulting from the recent lockdowns. Investors remain conservative, generally adopting a wait-and-see approach, but anticipated to resurface in H2 when the pandemic gradually eases.
- China cut its five-year Loan Prime Rate (LPR)1 by 15 bps to 4.45% in May. Since the 2019 reform, its LPR has been adjusted four times and has gone from 4.85% to its current level of 4.45%. This will lower the borrowing costs on existing home mortgages. The corporate loan rate also dropped by 0.31% to a historic low at 4.32%. This may ease the liquidity pressure on corporate clients, but real estate developers remain under pressure with the regulations and restrictions on real estate development, such as financing and capital to debt ratios still in force.
- Improved transaction volume has resulted in mild compression of cap rate for industrial assets in Bengaluru.
- Slight easing of yields across all asset classes for Auckland and Taiwan due to a rise in interest rates.
- Yields across sectors were generally flat for Singapore. Prime office assets in the city-state remain highly sought-after due to their limited supply and positive rental outlook, putting some compression pressure on this segment in the near term.
- Australia has entered a transitionary period amidst a rising interest rate cycle, off the back of higher-than-expected inflation. It is anticipated that softening may start in the coming quarters, expecting a period of low transaction activity over the short term whilst vendor and purchaser expectations recalibrate.
- Effective rent growth is anticipated to continue throughout the balance of 2022 for the industrial sector in Sydney and Melbourne, which provide pricing support.
- Overall office investment activities in Australia have been more subdued over the first half of 2022 compared with H1 last year.
Download the latest APAC Cap Rates Snapshot | Q2 2022 below. For more real estate advisory insights across Asia Pacific, reach out to our experts CK Lau and Dwight Hillier.
15-year LPR is a target interest rate set by the People’s Bank of China as a part of its monetary policy strategy. It is a market-based benchmark lending rate determined by the Central Bank for prime borrowers, based on the quotes provided by representative banks.
