Institutions prepare for record sell-off of APAC real estate
Instituional investors are preparing for a record sell-off of Asia-Pacific real estate this year, which could see long-awaited price corrections in many office markets.
More than 40% of APAC investors will be net sellers of real estate this year, the highest proportion since records began in 2014, according to CBRE’s 2024 Asia Pacific Investor Intentions Survey.
The survey polled more than 510 investors across the region in November and December.
Much of the selling activity is likely to be concentrated on office assets, according to advisors and consultants.
"Uncertainties over office demand, given hybrid working arrangements, will continue to weigh on the office sector," said Christine Li, head of research at Knight Frank Asia Pacific.
Knight Frank APAC
Li pointed to other structural headwinds for the sector this year: “The current global economic slowdown particularly with large scale technology and banking retrenchments could continue to weigh in the near term.”
“While industrial and office sectors remain popular among Asia Pacific investors, interest in these asset types has been declining since 2021,” said Henry Chin, global head of investor thought leadership and head of research, Asia Pacific for CBRE.
SUFFERING OFFICE SECTOR
“The return-to-work story is not playing out quite as was expected,” said Andrew Thompson, head of private equity, at KPMG Asia Pacific in Singapore.
He added that the reluctance of employees to return to the office five days a week has seen unanticipated shifts in how offices are located, designed and used, with employers seeking more efficient use of office assets, and a shift to temporary from fixed offices.
CBRE
“The impact of an employee working from home is much more than a 20% cut in the real estate required [by the employer]. They are looking at their whole real estate offering,” he said.
“Agile working trends will continue to exert downward price pressure on offices, while ESG issues may render some older building obsolete in the future,” said Simon Smith, regional head, research and consultancy, Asia Pacific at Savills in Hong Kong.
“Office yield is quite low across the region: most markets have a negative yield carry. Industrial is rather fully priced and there is a limited supply of assets to trade. With lease terms typically between five and ten years, or even longer, it is not a good hedge against inflation in the current environment,” he added.
China faces further obstacles peculiar to its current development cycle and wider economy, said James Macdonald, head of research and consultancy at Savills China in Shanghai.
“[Waning interest in offices] in China is largely a result of overbuild over the last three-five years, and anaemic growth in demand, given the current economic prospects. Vacancy rates in many markets are at decade highs,” he said.
PRICE CUTS WILL BE KEY
If they act on their intentions, investor selling this year will break a long-standing stalemate, which has seen transactions in the APAC sector fall significantly, as owners of private assets refuse to drop prices and buyers continue to wait for repricing.
KPMG
“The liquid REIT [real estate investment trust] markets fell between 25% and 30% [from their peaks in 2022] but owners of unlisted assets closed their eyes, pretending nothing had happened,” said Thompson.
Without the readiness to cut prices, however, investors' avowed intention to sell is unlikely to come to anything.
The importance of price cuts is illustrated by the finding that, where investors are planning to buy this year, repricing is the most common reason.
In the CBRE survey, it was cited by 23% of those who intended to buy properties this year, ahead of the growing availability of distressed opportunities, reported as the second most common reason for a planned purchase, at 17%.
“The mismatch in pricing expectations between buyers and sellers remains a major concern for investors,” noted the CBRE report.
Li at Knight Frank contrasted the slow pace of re-pricing in APAC office markets to the retail sector, where quicker repricing saw the sector pick up last year.
-The share of investor flows into retail increased to 22% in 2023 from 17% of total spend in 2022, according to Knight Frank data.