SEA's real estate market is a growth hotspot amidst global slowdown: Cushman & Wakefield

Wong Xian Yang of Cushman & Wakefield highlights promising trends, investment opportunities, and green initiatives in the region.

Southeast Asia is projected to be a critical engine of the global economy, with encouraging forecasts for its real estate market, according to Cushman & Wakefield’s Southeast Asia Outlook 2023.

In an interview with Real Estate Asia, Wong Xian Yang, who heads Research at Cushman & Wakefield Singapore, provided insights on the region’s expected performance and investment opportunities over the next decade.

Wong emphasised that despite varying economic growth rates in Southeast Asia, the region’s prospects remain promising. He noted that Southeast Asia is expected to grow by 4.7% in 2023, nearing pre-pandemic annual growth rates of 5%.

This positive trend is anticipated despite potential slowdowns in the US and Europe and concerns about rising interest rates and global economic deceleration.

“I think that increasing urbanisation fueled by digital transformation will create a huge market opportunity that will drive property demand in the region,” Wong said, citing how the digital economy in Southeast Asia alone is expected to grow by 20% annually from 2023 to 2025.

Furthermore, Southeast Asia has capitalised on global trade trends and a fragmented geopolitical environment, driving supply chain diversification and an expected increase in regional trade. Trade-oriented economies like Vietnam, Malaysia, and Singapore are predicted to benefit significantly from these trends.

Investment sales in the Southeast Asian property market reached a decade-high of nearly $19 billion in 2022, with Vietnam and Indonesia surpassing a 10-year average. For the Philippines and Thailand, investment sales have been slightly steady.

Industrial investment sales are on an upward trend, too. “Investors are betting on supply chain diversification from China... and the rise of alternative manufacturing hubs in Southeast Asia,” said Wong. “And that’s why they see there’s a general uptrend in industrial investment sales.”

In terms of sustainability, Singapore leads in the green building initiative, with a government master plan aiming to have 80% of buildings be environmentally friendly by 2030. Wong believes that this trend, coupled with high property values in Singapore, creates an ideal environment for green opportunities.

In discussing Singapore’s property market outlook, Wong forecasts continued growth in residential prices despite recent cooling measures.

“Into this year, a forecast I will say, whatever they choose, we still expect the rents and capital values to continue to grow despite rising interest rates,” he said.

The logistics and industrial market, particularly prime logistics, are expected to thrive due to tight supply. The hospitality sector is also optimistic, with anticipated increases in revenue per available room (RevPAR) performance as tourist arrivals continue to rise. Conversely, the retail sector may face the most pressure due to slowing economic growth and high inflation, Wong said.

Finally, Wong emphasised the emerging trend of “flight to quality” and “flight to green buildings.”

He said landlords are expected to face increased pressure to refresh their buildings to attract market rents, maintain strong occupancies, and mitigate obsolescence risks.

This trend is predicted to bifurcate the market into green and non-green buildings, with the former enjoying robust demand and the latter potentially facing discounted rents, occupancies, and capital values.

These insights offer valuable perspectives for investors and stakeholders looking to understand and navigate the rapidly evolving Southeast Asian real estate landscape.