Here’s what to expect from APAC’s commercial property investment market in H2

The double whammy of inflation and interest rate hikes will further dampen market demand. 

Commercial real estate markets in Asia Pacific are set to experience moderating demand for the rest of the year as inflation and interest rate hikes persist.

Accordion to CBRE’s latest report, the 2022 Asia Pacific Mid-Year Real Estate Market Outlook, the lack of clarity around the full re-opening of mainland China continues to cloud the regional economic outlook. 

This combined with a slowdown in global economic growth, has prompted CBRE to downgrade slightly its regional gross domestic product forecasts for 2022.

Here’s more from CBRE:

While CBRE expects Asia Pacific to experience continued headwinds until mid-2023 as a result of the global economic slowdown, the region is likely to avoid a recession. Mainland China and Hong Kong SAR are expected to lead the region’s economic recovery, likely commencing in the first half of next year. Accommodative monetary policies in mainland China and Japan will continue to support growth in the region.

“Rapid inflation, prolonged zero-Covid policies, the Russia-Ukraine war, and faster-than-expected interest rate increases have impacted the Asia Pacific region to a stronger degree than anticipated at the start of the year,” said Henry Chin, Global Head of Investor Thought Leadership & Head of Research, Asia Pacific. “While additional economic stimulus in China and the reopening of borders and recovery in international travel will be an impetus to growth, real estate will be characterised by moderate demand, slower decision-making, rising fit-out and construction costs, and generally lower investment activity.” 

With Asia Pacific leading the global return to office, these assets remain investors’ preferred target. Newly built and well-located high-quality office and logistics properties are sought-after as investors seek resilient assets. Retail and hotel assets are expected to attract stronger demand in H2 2022 as border controls continue to loosen. High-quality retail properties in tourist hubs will also be on investors’ radar.

“Investors in the region are acting cautiously when it comes to new acquisitions, but there is still capital sitting on the sidelines looking for right opportunities. While the ongoing economic uncertainty could put moderate pressure on prime property values, quality real estate properties are still sought-after. In Hong Kong, warehouses, factories, cold storage buildings and logistics centers for industrial and office use continue to be popular among family office and local and overseas institutional investors due to high demand and fierce competition for space,” said Reeves Yan, Head of Capital Markets, Hong Kong. 

Hybrid working is becoming a new norm for many companies, especially multinationals, as they look to improve space efficiency. Office rents are expected to remain strong in major markets such as Seoul, Singapore, and Taipei, while Chinese cities will see slower than expected rental recovery due to the large-scale lockdowns of cities in H1 2022. 

“The significant number of completed Grade A commercial developments in Hong Kong, coupled with the notable reduction in office rents has led corporate tenants to consider relocating their offices to locations that are better in line with their strategic objectives. This trend is often attributed to tenants’ workplace transformation programs as they look for the more flexible or hybrid working style that is logistically more viable for their business and as part of their conscious efforts to move to ESG-friendly green buildings. That said, rents and financial incentives remain the key considerations for office relocation given the current economic outlook,” said Ada Fung, Head of Advisory & Transaction Services – Office Services, Hong Kong.