APAC to sustain growth in commercial real estate investment in 2022: CBRE
CBRE sees a 5% to 10% growth in total transaction volumes this year.
Whilst 2021 is not the year everyone expected it to be, the real estate industry in the Asia Pacific was surprised by the rebound it saw, especially in the commercial investment market. This momentum is even projected to be sustained going to 2022 with a 5% to 10% forecasted growth, which the CBRE calls a “historical high.”
This growth will largely be driven by investments in Japan, Australia, and Singapore, amongst others, according to the real property firm.
In an exclusive interview with Real Estate Asia Editor-in-Chief Tim Charlton, Greg Hyland, Head of Capital Markets, Asia Pacific, CBRE, spoke more about CBRE’s outlook on commercial property investments that remain largely “optimistic.”
Can you describe to us the year 2021 for the real estate industry? What actually happened?
We were pleasantly surprised with the rebound we saw in the commercial market across Asia Pacific in 2021. In fact, we're just finalising transaction volumes. We see that total volumes approached US$150 billion, which is an absolute record for Asia Pacific. We're going into 2022 with a lot of momentum across a lot of markets in Asia Pacific.
What factors do you see playing out in 2022? Any fearless forecast of transaction values in the APAC market?
We're forecasting a 5% to 10% increase in total volumes in 2022. You did mention interest rates, and it is a concern for investors on the horizon. There are some markets like Korea where the Bank of Korea has raised rates a couple of times, and the Bank of New Zealand, as well, has raised rates. So the spectre of increase in borrowing costs against cap rates that have been compressing for five years is really playing on investors' attitudes at the moment, but I think that outweighs the capital that's available and looking to place into the Asia Pacific markets. The credit markets remain extremely liquid. So we're very optimistic, despite the interest rate cycle that we appear to be entering now.
With rates rising higher for some funders in their currency, do you expect capital values to come under a bit of pressure in certain markets or for certain funders looking to invest?
In the near term, we don't expect that to happen. I think what we are experiencing in the Asia Pacific, is most markets are in a rental upward cycle. So that's offsetting, I suppose, some of the impact of interest rates. So investors are really now being quite specific and laser-focused around the resilience of cash flows, and how those cash flows will grow over the next three to five years in that increasing interest rate environment.
We’ve seen the office space come back and logistics has had a huge boom. Do you see a weight of capital going from one type of investment to another or is it going to be the same as it has been?
Logistics still remains the favoured asset class for investors in the Asia Pacific. But interestingly, we just completed our 2022 investor intentions survey and we've started to see a swing back towards the office. I think when we went into the pandemic, there was a lot of concern around the future of office and how that would play out for demand from corporations. I think the resounding sort of answer is yes, the office is going to stay.
We're starting to see that investor confidence returning to the sector and look, there's a slight rotation back towards that space. Interestingly, retail had a very difficult time over the last four or five years, and investors have rotated out. We're starting to see it gradually at the edges, a return of investors' appetite towards retail as well.
Can you share with us any other interesting recent transactions or anecdotes that you think best illustrate what's happening in the real estate market at the moment?
Our client base are very large global investors, and I think the two markets that kind of bookend Asia-Pacific is Japan, and that’s the biggest market by transaction volumes. The continued low funding costs and spread that Japan offers will remain in 2022 and beyond. It will be the market that, from our perspective, will have the most transaction volume.
I think in the South, in Australia, in particular, we saw a significant rebound in transaction activity in 2021. And look, I'm sitting here in Singapore at the moment and Singapore is, I suppose, a beneficiary of the explosion of tech demand in Southeast Asia. We've seen the office markets in Singapore really sort of rebound quite robustly. In fact, the Singapore office market is in our forecast expected to be the best performing market across any market in Asia-Pacific going forward.
I think, broadly speaking, a lot of our investors are focusing on the gateway city markets–Tokyo, Seoul, Singapore, Sydney, Melbourne. But you know, increasingly as borders open and people can travel, the emerging markets will start to regather interest.
Hong Kong is the city that I don't think you ever write off. It's gone through challenges, historically, and it's always bounced back. You know, the issues, I suppose with COVID and the policies that are in place at the moment, make it difficult for people to travel in and out but you know, Hong Kong is an amazing place and I'm sure it'll bounce back once we get through COVID.
Looking into CBRE, what sort of initiatives are you working on this year that might be interesting for the market to know about and understand?
We continue to invest in our business broadly, we aim to be the service provider of choice. I think one area where we have made significant investments has been in the debt space. We've expanded our team substantially in the Asia-Pacific region, particularly in New Zealand and also Australia. We continue to add capability in our Capital Advisors space, and we want to position our firm so that we can help our clients across the capital stack. Thirdly, we have made investments in our hospitality space and that's bearing fruit. And we think that hospitality is positioned to show significant outperformance as economies and travel returns.
We're very optimistic about 2022. We've entered into a period where it's been challenging and companies have adapted to COVID, the new normal. Our businesses globally are performing extremely well. There's a lot of money that's looking to be placed into real estate. So we're very, very optimistic about 2022.