Here’s a rundown of how APAC real estate markets will fare in 2023
The market is expected to continue to favour tenants.
The Asia-Pacific region is set to remain the world's fastest-growing region, despite ongoing stressors exacerbated by the Russia-Ukraine conflict and global financial volatility. Even as growth momentum continues to normalise across much of the region, domestic-oriented economies such as emerging Southeast Asia and India are forecast to remain supportive of overall regional growth in the upcoming year, according to Knight Frank's latest report, Asia-Pacific Outlook Report 2023: Pivoting Towards Opportunities.
"With much of the known risks largely priced in and likely to have overshot on current negativity, there remains scope for fundamentals to surprise on the upside, underpinned by the marginal easing of zero-COVID strategy and the lower-than-expected terminal interest rates. As of late, Chinese authorities have lowered the duration of quarantine for inbound travellers, a step in the right direction that could set the tone for more calibration and an eventual exit in 2023/2024. We can afford to be sanguine given that nascent signs of inflation peaking have crept into the Fed's data watch," said Christine Li, head of research, Asia-Pacific.
“While it remains to be seen if these can be sustained, the prevailing macroeconomic and policy uncertainties, once rolled back, will narrow bid-ask gaps and pave the way for higher investment activity."
At a sector level, the report predicts that the market conditions in 2023 will continue to favour tenants as high-amenities office buildings with sustainable credits are being completed and ready for occupancy. Rents in the logistics sector are forecast to increase by 5.5%, while office rents will rise by 2% across the region.
Overall, real estate offers good diversification benefits with a relatively low correlation to equities and bonds. Therefore, risk-adjusted returns for direct real estate are unlikely to re-price to the same extent as indirect.
“While the Asia-Pacific economy will face significant headwinds in 2023, it will remain a bright spot amid the shadows cast by the slowing global economy. Economies in the region will once again dominate growth worldwide, which will have implications for its real estate markets. That underlying growth will continue to underpin its attraction to occupiers, while its economic diversity offers ample opportunities for investors to target a range of asset classes to position their portfolios for the post-pandemic landscape,” Kevin Coppel, managing director, Asia-Pacific added.
“The global macroeconomic headwinds will impact upon Malaysian markets. However, we are still hopeful that the newlyelected unity government will be able to outline clear and consistent policies in driving economic investments into our country, and encourage all direct measures to revitalise and sustain the growth of the property sector. Malaysia needs to bring back investors’ trust and faith in our economic growth, in order to see recovery across all sectors,” Sarkunan Subramaniam, Group Managing Director, Knight Frank Malaysia shared his comments on the challenge and opportunity that might affect economic growth in Malaysia.
“We hope for the government to introduce “green incentives” to property buyers, landlords and developers who are aligned with the nation’s target of becoming a “net zero” nation by 2050. We encourage an extension of existing incentives to incorporate tax reliefs/grants to industry players who include green features into their developments, especially renewable energy like solar panels and water harvesting, as well as sustainably-built properties from timber and low-carbon cement in place of high-emission materials. It’d be wonderful to see these incentives being extended to property buyers who purchase “green homes” with “green features” – thereby addressing the high capital outlay that is required in order to ensure a sustainable future,” Keith Ooi, Deputy Managing Director of Knight Frank Malaysia also highlighted the key initiative on his wish list in driving the property sector forward.
• Growth in office rent will moderate from 3% to 2% as occupiers add flexibility to their portfolios to generate savings.
• Vacancies are forecast to rise from the current 14.6% to 16% as corporates turn more cautious with expansion.
• Many occupiers are anticipated to move swiftly to an office at first stance – emboldened by increased rates of return to the office driven by job insecurity.
• Co-working footprint in the CBDs is expected to expand in line with the shift in preference for flexibility by space users.
• Normalising e-commerce growth and supply chains are expected to alleviate some pressure on demand and rent for logistics spaces.
• Structural demand from “China Plus One” strategies and new economy sectors in the healthcare and life sciences is expected to remain resilient.
• Market fundamentals will render a balanced logistics market. Rental growth is set to moderate as compared to the past two years.
• Volatility will hold up transactions in the short term as investors seek price discovery in various markets. Activity is expected to pick up in the latter part of 2023 as the macroeconomic picture stabilises.
• Investors will gravitate towards core, liquid assets in prime locations with attractive yields relative to the cost of debt as defensive options.
• Private wealth investors from the region, with a lower reliance on debt and a tendency to hold assets for the long term, are expected to turn active.
• Cross-border residential investments from APAC high-net-worth individuals are expected to climb due to demand for prime properties in global safe-haven markets.
• Singapore remains highly sought after by Greater China buyers due to its reputation as a safe haven and a growing hub for business and finance.