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2023 Global Investor Outlook: Asia Pacific Highlights

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Colliers 2023 Global Investor Outlook

Navigating the global real estate reset: Asia Pacific highlights


The 2023 Colliers Global Investor Outlook provides insights from the global survey of our international investor client base, technically analysed by our industry-leading research teams along with views and perspectives from Colliers’ senior experts across markets globally.

Real estate is by no means immune to the volatility impacting capital markets. Yet, it’s also immediately evident that the fundamentals around real estate remain strong. Investors are highly attuned to some advantages that today’s scenario present across asset classes.

As the report highlights, a recalibration is underway in many markets, that we expect to continue well into 2023. Colliers’ consensus is that the global real estate market will start to stabilise by mid-2023 as more certainty emerges around the interest rate outlook. We recommend investors view recent trends not so much as a downturn but as a return to relative rationality. 

 


“In Asia Pacific, now is the time for investors to pick their markets and assets. Moreso, amid limited competition among buyers today. Gateway cities offer some of the best opportunities. Investors with the right strategies and markets with deep pools of private capital will prosper. Markets will always remain susceptible to challenges and events, which may either trigger a backwards thrust or give as much push forward. What’s key is stabilising portfolio at speed to drive with a positive momentum, keeping eyes on leading the upturn.” 
Chris Pilgrim
Director | Global Capital Markets


 

Key highlights: Asia Pacific capital markets

Conducted in October and November 2022, the survey for this third edition of our annual outlook for global property investors garnered responses from over 750 investors globally of which over 365 were from Asia Pacific. This is a record number of survey respondents we have had thus far, both globally and regionally, undoubtedly reflecting investors’ interest in real estate opportunities in the year ahead. The five main Asia Pacific themes are:

 

1. Relative dynamism and diversity

The region’s relative optimism on growth stands out. Some 43% of respondents see global economic growth having a positive market impact in 2023, almost on par with those expecting a negative impact (46%), and well above the proportions in EMEA and the Americas. Regional growth expectations are more robust with over half of Asia Pacific investors (53%) anticipating positive impact, versus 41% in EMEA and 38% in the Americas (Exhibit 1).


"We expect the APAC region to outperform all other markets in 2023. There are significant headwinds in Europe and the US with real risks of recession. As a result, we think APAC will be a haven for property investments. As the debt markets stabilise and volatility fades, we also expect private equity to ramp up M&A activities through 2023.” 
Adam Woodward
Head of Office Capital Markets | Australia


APAC is incredibly diverse in terms of the scale of its markets, pace of development and even the direction of monetary policy, and we see several key forces accelerating across the region in 2023. The most eminent is the flight to quality in the office sector which, the survey shows, is a priority for investors. A key reason is the genuine return to the office in the region. Companies are encouraging this by providing high-quality office environments to attract and retain employees, which also aligns with a growing emphasis on sustainability ratings. 

Retail within the region’s CBD markets is key to the return to office ecosystem. Regional investors are showing a clear uptick in their intention to invest in CBD retail in comparison to a decline in responses within EMEA and the US. 


“Office tenants today are placing greater emphasis on not just the space they occupy, but the overall amenities and services both the building and office location have to offer, to entice employees back to the office. This in turn will continue to support retail within CBD locations. The fight to quality thematic is prominent with ESG rated buildings in the best locations and close to transport hubs experiencing higher occupancy levels across markets.
John Marasco
Managing Director, Capital Markets & Investment Services | Australia


 

2. Investors to raise exposure despite challenges 

Indeed, there are challenges ahead. The proportion of investors expecting fallout from inflation has more than doubled from 2022 (72% vs. 35%) (Exhibit 2), and an overwhelming majority (88%) expect a negative impact from interest rates which is a consistent response across regions (Exhibit 3). Unsurprisingly, given the recent dollar strength APAC investors are more apprehensive about currency fluctuations than those elsewhere - 63% see a negative impact in 2023, vs. 61% in EMEA and 49% in the Americas. 

However, investor sentiments are supported by the region's relative policy stability and the growth prospects of many APAC markets versus the US and Europe.


“Most of the western world pension funds or insurance capital and other sovereign wealth funds, are generally underweight in their exposure to the Asian markets. They're now becoming more aware of that, as they may be over-allocated to their local markets which are going to be potentially the most impacted by interest rate trends. We will see a lot of those European or North American funds really try to gain exposure to the Asian markets where they see the potential to allocate large amounts of capital.” 
John Howald
Executive Director and Head of International Capital | Asia Pacific


There has been a noticeable decline in concerns around travel restrictions, with 56% of investors expecting these to have a negative impact in 2023 versus 74% in 2022 – though the rate is still high relative to other regions (40% in EMEA, 33% in the Americas). Concerns about COVID-19 impact and the return to the office also appears to be fading, with just 30% of respondents expecting this to exert a negative impact in 2023 vs. 74% in 2022. Moreover, we saw relatively less concern in APAC around tenant solvency (47% see a negative impact, vs. 55% in EMEA and 49% in Americas). Over 50% of APAC investors are positive about rental growth in 2023. 

"Similar to 2022, 2023 will be a game of two halves with the difference being that transaction momentum will gain in the second half of the year as the market adapts to a pricing reset. This will in turn support confidence for investors to move forward with decision making and early movers will include opportunistic investors chasing relative value across Asia Pacific. We should see a healthy recovery in transaction volumes towards the end of next year. Stability is on the horizon." Joanne Henderson, National Director, Research | Australia.

 

3. Spotlight on Japan, Australia, Singapore and South Korea

Japan, Australia, Singapore and South Korea, where transaction volumes remain healthy and investor appetite strong. Tokyo office and industrial and logistics (I&L) have emerged front runners in terms of number of investors targeting the market and its sectors in 2023, driven no doubt in part by the weak Yen and the country’s comparatively benign inflation outlook. By asset class, there’s keen appetite for Japan multifamily and hotels relative to last year.

"Only Japan and Singapore rank A in the country risk assessment published by the OECD in Asia. Japan has no restrictions on foreigners purchasing real estate. What’s more, Japanese real estate is relatively undervalued. For example, in developed Asian countries such as China and Taiwan, the average yield is 1-3%. In contrast, yields in Japan's urban areas reach 3-6%. While the average home purchase in Japan is about five times one's annual income, the average home purchase in Taiwan is about 16 times one's annual income."
Hisakazu Iso
Deputy Managing Director and Head,
Capital Markets & Investment Services | Japan


Interest in the Sydney office and I&L is nearly on par with the expectation that opportunities will become available to enter one of the regions gateway cities, particularly for value-add and opportunistic capital looking to enter the Sydney CBD office market. Other standout performers include Seoul office and Singapore office. In developing markets (e.g., ASEAN, India) I&L tends to be the most sought-after.

“The return-to-office in Korea has bounced back quickly to pre-Covid levels and has coincided with a record low unemployment rate of below 2.8%. The global flight to quality thematic has been strong and office demand robust, led by the Finance and ICT sectors. Korea is a global leader in the IT and Communications sectors, as well as cultural and creative sectors.  This has led to vacancy rates below 3% and continued strong rental growth as office supply remains low.  This in turn will make the Seoul office market a standout destination for global investors." Judy Jang, Director Research | South Korea.

Investors’ overwhelming preference is for established, larger cities, with 73% preferring these vs. just 3% preferring tier 2&3 cities and 23% showing a preference for both – a sign of people sticking with known markets that are most likely to deliver value during a pricing reset.


“Singapore continues to present itself as an attractive investment destination, which is evident from the strong demand and growth of family offices establishing their hub in Singapore. This creates demand for real estate, especially in residential for homes and offices for both investment and own use.”
WeiLeng Tang
Managing Director & Head of Capital Markets | Singapore


 

4. Office and Industrial top Investors’ list.
Datacentres, 
out of town malls,
mid-scale hotels gaining ground
Office and I&L remain APAC investors’ top choice (68% and 65% planning to invest respectively) followed by multifamily (42%), which now notably outpaces retail and hotels. Around a quarter (24%) of investors are planning to invest in specialised assets (alternatives) (Exhibit 5).

In targeting core/core plus office assets in prime CBDs, over half of investors (53%) are focused on top rated for energy efficiency/carbon. A similar proportion (51%) are seeking prime non-CBD assets with standard energy efficiency/carbon ratings (Exhibit 6). Only a minority intend to invest in offices regardless of energy/carbon ratings, even when it comes to value add/redevelopment assets, indicative perhaps of both sustainability becoming an increasingly important consideration, and determination to rein in rising energy costs.  


“Buoyed by favorable policies and strong demand dynamics, real estate in India is on a highly positive trajectory across asset classes. Office and industrial sectors are likely to surpass pre-Covid levels. India’s residential story is equally strong as the market remains underpenetrated. There are good quality portfolios available for acquisitions and some of the global funds are actively investing and looking at integrating their portfolios with big thrust on ESG factors in their investment strategy.” 
Piyush Gupta 
Managing Director Capital Markets & Investment Service | India


Big-box/warehouse has displaced last-mile distribution as the top I&L pick in 2023 (78% planning to invest). There is also noticeably higher interest in industrial park/manufacturing facilities (48% planning to invest) and container terminals (Exhibit 7). 


“It is in the mandate of most institutional investors and investment funds to invest in industrial. So, this will generate stable income and growth going forward."
Thomas Chak
Co-Head, Capital Markets & Investment Services | Hong Kong


In alternatives, investors are keener on data centers (62% planning to invest vs. 17% in 2022), as well as life sciences (44% vs. 12%) and senior housing (40% vs. 9%). This could be evidence of rising awareness and/or desire for assets with a strong connection to fundamental trends in a generally tough environment. Alternative asset classes that are supported by strong population growth and demographic fundamentals currently offer a unique investment proposition that provides exposure to growth industries, supports portfolio diversification and lower risk asset assets offering a long-term cash flow with reduced levels of rental downtime.


“So far, offices and logistics have been the most favoured asset types delivering stable returns in a highly liquid environment. With investors now taking a more conservative approach amid continued loan rate hikes, we see the focus shifting towards alternatives like data centers where asset values are expected to increase faster over the long term. Demand for data centers is gradually outgrowing the supply given limited investment opportunities in the market. Those guaranteed with sufficient power supply and government approvals will be most sought after.”
Sungwook Cho
Executive Director, Capital Markets & Investment Services | South Korea


In retail, interest in reposition/change of use opportunities has declined in 2023 (28% planning to invest vs. 48% in 2022), as has the appeal of grocery/convenience assets (34% planning to invest in 2023 vs. 56% in 2022). On the other hand, there is rising interest in suburban malls in 2023 (52% vs. 48% in 2022), and in CBD/high street retail (48% in 2023 vs. 44% in the previous year) (Exhibit 8). 


“Investors are increasingly recognising that e-commerce is fast reaching a saturation point and that physical stores are crucial to the retail journey. This is demonstrated in robust retail sales data across Asia Pacific and in particular the Australian market. When this is combined with an ability to introduce alternative asset classes such as life sciences, build to rent, medical, office and data centers to the retail offering, you have a product that touches almost every aspect of customers’ daily life, making retail ever more critical to the town center landscape. We see rising interest in suburban malls, reflecting attractive relative value and having been broadly repriced vs peer groups in office and industrial.”
Lachlan MacGillivray
Managing Director, Retail Capital Markets, APAC


In the hotels sector, mid-scale properties are attracting the most interest, consistent with last year (Exhibit 9). 


"Some of the older long-term holders, particularly in Asia, are looking to recycle capital out of some assets that they've earned from for an extended time. At the same time, a number of larger global private equity funds, who have recently raised capital, are looking to enter the hotel space, and are scouting for portfolios and/or platform players."
Karen Wales
National Director, Hotels Transaction Services | Asia Pacific


 

5. Sustainability core to investment decisions, more action in 2023

Sustainability is clearly driving the flight to quality across APAC markets. Investors are placing big emphasis on environmental, social and governance (ESG) criteria and ratings, not just for regulatory and reputational reasons, but increasingly in response to occupier demands and to balance out asset operational costs longer-term.

Investors know that ESG-compliant assets will command a premium in the future (Exhibit 11). Hence, as noted above (Exhibit 6), in targeting core/core plus office assets in prime CBDs, the majority (53%) are focused on top rated for energy efficiency. A similar proportion (51%) are seeking prime non-CBD assets with standard energy efficiency ratings.

We see more action on the ground in the year ahead as just 20% of the APAC investors (versus 25% globally) have completed full asset assessment in terms of their energy efficiency and performance and 30% (33% globally) investors’ assets are currently being integrated with new ESG performance benchmarks (Exhibit 10). Non-compliant assets will increasingly be confined to discounted territory and targeted for redevelopment or disposal.

 


“The flight to quality means the smart investor is really executing plans proactively. A key element to asset management is factoring in capital expenditure (CAPEX) for asset upgrades and repositioning, to improve energy efficiency and overall operational costs.”
John Marasco
Managing Director, Capital Markets & Investment Services, ANZ


 


Investors today are indeed cautious, awaiting more clarity and for relative stability to return. We understand their concerns, more than anything, what our clients value at this volatile point in time is guidance.

We will continue to provide our clients and investors with the insights they need to navigate market shifts and capitalise on the possibilities and opportunities that emerge as a result. We welcome the opportunity to understand your challenges and help accelerate your growth.  


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2023 Global Investor Outlook: Asia Pacific Highlights

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2023 Global Investor Outlook