APAC real estate market to continue to favour tenants in 2023
Logistics and office rents are expected to increase 5.5% and 2%, respectively.
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 highly-amenitised 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.