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Property Segments Remain Strong as 2021 Nears Its End

blog CVAS property segments remain strong as 2021 nears its end_3x2

Economic recovery across Asia Pacific continues, with most property markets looking firm.

Growth is moderating…

Recovery from last year’s COVID-19 recession continues across Asia Pacific (APAC), despite some loss of momentum in China in H2 2021. Real GDP growth rates in 2021 for the large markets should range between about 7.5% for China at the high end and 2.4% for Japan at the low end.

We expect real GDP growth to moderate in 2022 in most APAC markets, including China, although top Chinese cities (notably Shenzhen) look set to remain some of the world’s fastest-growing. Growth in India, however, should be almost flat, while growth in Australia should rebound as the country recovers from prolonged lockdowns, which have depressed activity this year.

Upward pressure on inflation globally is a key risk. This may be positive for investment in real estate, which is traditionally seen as a hedge against inflation. However, if inflation forces rapid increases in interest rates, the pace of economic recovery will probably slow, reducing confidence among occupiers and curtailing their expansion.

 blog CVAS property segments remain strong as 2021_South KoreaInvestment demand remains firm in across APAC property markets, particularly in South Korea, as total property deal volumes across the region rose to a record USD102 billion in H1 2021. 

In APAC, only South Korea and New Zealand have increased policy interest rates so far in H2 2021, but financial markets broadly expect the US to start raising interest rates in 2022. This would stimulate further rate increases in APAC in both developed and developing markets, partly to support exchange rate levels.

But most market segments look firm

So far in 2021, the APAC region has seen a robust pick-up in office leasing activity, strong leasing demand from logistics and industrial occupiers, and signs of recovery in the retail property sector.

Investment demand has also been very firm: total APAC property deal volumes rose 28% year-on-year (YOY) in H1 to a record USD102 billion, with particular strength in Hong Kong SAR1  and South Korea.

Logistics, in particular, have stood out, but most sectors saw high investment, including alternative asset classes. While total deal volumes were only about flat in Q3, many markets stayed firm.


"Total APAC property deal volumes rose 28% YOY in H1 to a record USD102 billion, with particular strength in Hong Kong SAR2 and South Korea."


The forces underpinning recovery in occupier markets and strength in investment markets look solid, but it remains to be seen to what extent the Evergrande situation and broader issues in Chinese residential property will affect sentiment going forward.

Office markets mostly picking up

APAC office leasing markets are recovering. Net absorption has rebounded sharply in China, and with the exception of Japan, there is little evidence that greater home working has depressed occupier demand. While well above absorption, aggregate supply has been below Colliers’ forecasts, and so vacancy rates may not rise as fast over the next few years as we had thought.

Office rents now look close to bottoming in Singapore, Beijing, Shanghai and Hong Kong. High incentives are still depressing effective rents in Sydney and Melbourne, but we expect rents in both cities to turn up sharply over the next few years, together with Auckland.

Indeed, several cities appear close to the point where they shift from favouring tenants to favouring landlords. Tokyo is again an exception; here, we expect rents to fall further from what are currently APAC’s highest levels.


“Indeed, several cities appear close to the point where [office markets] shift from favouring tenants to favouring landlords.”


Investment demand for office assets remains healthy, with USD62.0 billion of closed transactions in the sector in APAC over the first nine months of 2021. While still the largest investment sector, offices now make up 42% of total APAC property transactions, down from 51% in 2016.

Logistics and industrial still strong

Logistics markets mostly remain very strong. This is especially true in Australia, where occupier demand is far outstripping supply and rents are rising sharply.

Demand is firm in most other regional markets, although ample supply in Singapore and the peripheries of leading Chinese cities may cap rental growth. Cold storage and data centres are two specialised categories of industrial property seeing very rapid growth.

Investment interest in logistics and industrial markets is also very firm, with transaction volumes growing 42% YOY over the first nine months of 2021. The sector has made up 26% of total APAC closed deals so far this year, versus just 12% in 2016, and comes in second place after offices.

Retail: green shoots of recovery

Effects of Evergrande situation should be transient

APAC stock and bond markets have been rocked over H2 2021 by major financial stresses in the Chinese residential property sector.

We estimate that 19 predominantly residential developers fail at least one of the “three red lines” financial tests adopted by the Chinese authorities, including the large housebuilder Evergrande, which now fails two. Stock markets have been concerned about possible bankruptcies and pressure on developers to cut prices.

So far, however, the Evergrande situation does not appear to have dampened demand for physical property assets. After the remarkable strength of H1, data from Real Capital Analytics shows that APAC investment volumes were flat YOY in Q3 2021, at about USD42.0 billion.

Nevertheless, many market segments displayed further strength, including Seoul offices, Singapore retail and mega-projects in Bangkok. Importantly, in China, more than 20 investment deals totalling RMB27.2bn (USD4.2 bn) were finalised across six cities in Q3.


“So far, however, the Evergrande situation does not appear to have dampened demand for physical property assets… APAC investment volumes were flat YOY in Q3, at about US$42 billion.”


Colliers’ latest survey of valuation cap rates also shows limited impact from Evergrande. Ten of 21 APAC cities surveyed saw quarter-on-quater (QOQ) movements in cap rates in Q3 2021. Australia's industrial and logistics cap rates fell up to 0.6pp QOQ, while Seoul industrial and logistics cap rates fell 0.5pp to the low 4% range. Cap rates were broadly flat in other Asian markets, including China.

Related content: Asia Pacific Cap Rates | Q3 2021 

The Evergrande situation may cause some reappraisal among international investors and valuers of the appropriate risk premium for Chinese property assets, potentially pushing cap rates upwards over late 2021 and 2022.

However, against a background of overall recovery in regional property markets, we do not believe that stresses in the Chinese residential sector will necessarily imply a long-term reduction in Chinese commercial property values – and still less in other APAC commercial property values.

1Special Administrative Region [of the People's Republic of China]
2Special Administrative Region [of the People's Republic of China]


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Hong Kong SAR China

CK Lau

Managing Director | Hong Kong & Managing Director | Asia CVAS

Managing Director's Office | Hong Kong

Hong Kong

CK Lau is the Managing Director | Hong Kong and also leads the Valuation & Advisory Services business as Managing Director | Asia.  He has over 30 years’ property experience in valuation, real estate consultancy and investment sales in Hong Kong, mainland China and the Asian region. 

His expertise includes development consultancy; government lease modification application and premium negotiations; investment and development sites sales; litigation valuation advice and expert witness in the High Court/Lands Tribunal/arbitration; portfolio valuations; REIT property advice; rental determination; and valuation due diligence services.

He writes regularly on topics relating to land use and development in Hong Kong since 2010. His collection of over 200 articles in the Hong Kong Economic Journal and other publications can be viewed through the following link:

CK is also a member in the following publications:

• “The HKIS Valuation Standards 2017 & 2020”

• “HKIS Guidance Notes on Valuation of Development Land” published in 2016

• “Surveyors acting as experts in commercial rent determinations” Joint guidance note Hong Kong prepared by the HKIS and RICS Hong Kong” 1st edition 2015


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