Apac real estate flows likely to recover despite lacklustre H1
Real estate investments across all sectors in Asia Pacific (Apac) will likely increase in 2022 after a steep year-on-year decline — although China is expected to experience limited recovery.
After a pandemic-adjusted rebound reaching record highs in 2021, Apac real estate investments fell 17% year on year to $70.9 billion in the first half of 2022 (1H 22), according to a JLL report on August 4.
“Investment volumes moderated from the recent pandemic rebound. Prolonged lockdowns slowed transactional activity in parts of Asia, affecting China in particular. The rising cost of debt made financing more challenging in Asia Pacific markets where central bank policy was aggressive on tightening to rein in inflation,” said Pamela Ambler, head of investor intelligence and strategy, Asia Pacific, JLL.
China has had a truly volatile year, with deal values plunging 39% in the first half of 2022 compared to last year. The country is likely to see a limited recovery helped by a surge in domestic demand as lockdowns ease.
Despite the situation, Ambler said insurance groups will continue to invest in direct China real estate deals amid the low cost of capital.
“Developers with longer time horizons and value-add investors may find opportunities in mainland China and Hong Kong, including purchase of distressed assets, but activity here is likely to be constrained in the near term,” Andrew Haskins, head of strategy and investor advisory, real estate, Asia Pacific at Schroders Capital, told AsianInvestor.
SECTORAL WINNERS
Sector-wise, all three major constituents: industrial and logistics, retail and hotel, and office properties, will be resurgent through 2022, according to CBRE’s Greg Hyland, head of capital markets, Asia Pacific.
Despite an 8% decline in activity compared to last year, the Apac office sector still attracted the most flows, with $30.6 billion coming in during the first half of the year, according to JLL. Meanwhile, Industrial and logistics sector investments plummeted 37% to 14.6 billion, and the retail sector also took a 31% hit at $14 billion. Alternative assets such as data centres saw deployments drop 12% to $1.4 billion.
“With Asia Pacific leading the global return to office, offices remain investors’ preferred target. Industrial and logistics assets will also continue to remain in strong demand,” Hyland told AsianInvestor.
“Newly built and well-located high-quality office and logistics properties will be sought after as investors seek resilient assets. Retail and hotel assets are expected to attract stronger demand in the second half of 2022 as border controls continue to loosen. High-quality retail properties in tourist hubs will also be on investors’ radar,” Hyland said.
Demand for office space in Singapore, Japan, and Australia will be robust, propelled by core investors seeking income as well as value-add investors hunting for repositioning opportunities, according to Haskins from Schroders Capital.
Interest in industrial and logistics assets would likely be tepid, given substantial yield compression in this sector, Haskins believed, adding that structural challenges would temper growth in the retail segment.
Singapore and Hong Kong real estate transaction volumes have altogether defied the trends, with 1H 22 netting an 81% increase to $9.3 billion and an 18% increase to $5 billion respectively, year on year.