According to CBRE's 2022 Asia Pacific Real Estate Market Outlook report, a record year for Asia Pacific commercial real estate investment is expected in 2022, driven by steady economic growth and pent-up investor demand.
CBRE expects total investment volume this year to grow by at least 5% to more than $150 billion, surpassing the previous pre-pandemic high of $142 billion in 2017. Strong investment activity from close-ended real estate funds, REITs and institutional investors--including many that paused acquisitions at the onset of the pandemic in 2020--are expected to drive the recovery. It is estimated that institutions in the region have up to $500 billion in equity on their balance sheets awaiting deployment.
"Logistics assets remain keenly sought after by investors in 2022, while interest in premium offices that target new economy tenants is expected to strengthen, supported by the return to the office and occupiers' requirements to meet Environmental, Social and Governance (ESG) commitments. While demand for retail and hotel assets will experience some near-term impact from the emergence of the Omicron variant, these sectors will continue to attract interest from value investors who are positioning for a recovery," said Greg Hyland, Head of Capital Markets for Asia Pacific at CBRE.
Most offices in Asia Pacific markets have reopened or are in the process of welcoming employees back to office-based working. The Omicron variant is unlikely to substantially derail the recovery of office demand as companies gain more confidence in the return to the office and hybrid working. Initial reactions from North Asian companies indicate that most will continue working at the office, albeit with limits on occupancy or team rotation.
CBRE expects 2022's office leasing activity as measured by net absorption to increase by up to 10% year-over-year on the back of a rebound in expansionary demand. Grade A office rents are set to grow around 1.0% in 2022, with Singapore leading the growth at more than 10%. Flight-to-quality relocations and newer, greener buildings are expected to help Asia Pacific's office market recover from its longest downward rental cycle in 20 years.
Asia Pacific's industrial and logistics sector is likely to see another strong year, buoyed by a solid regional economic outlook and improved global trade. Logistics rents are expected to grow for a 12th consecutive year across all major markets, led by Hong Kong, which is expected to benefit from trade growth when borders with mainland China re-open, as well as reduced supply availability. Supply pressure is expected to be uneven across the rest of the region Greater Tokyo and Guangzhou leading the pipeline of new supply reaching the market this year.
The emergence of the Omicron variant at the end of 2021 added fresh uncertainty to the retail market outlook. Prior to that, consumer footfall across the region had almost fully recovered to pre-pandemic levels, reflecting rising vaccination rates and easing restrictions on economic activity. CBRE retains its positive outlook for the asset class in 2022 as more markets return to growth, despite the delayed recovery of tourist-oriented retail. Regional retail rents are forecast to grow mildly with demand focused on good quality assets in prime locations in a tenant-favored market.
Robust Economy to Drive Commercial Real Estate Recovery
Asia Pacific economies achieved relative success in containing the COVID-19 pandemic in 2021, having fully vaccinated more than half of their populations. While the emergence of the Omicron variant has introduced uncertainties, CBRE believes it will not derail Asia Pacific's economic recovery in 2022.
"We expect steady economic growth and low interest rates to support commercial real estate recovery across the region. Active asset management and enhancement with a focus on ESG and repositioning properties will be prominent themes for investors in 2022, fueled by narrowing prime yield spreads and an emphasis on rental income," said Dr. Henry Chin, Global Head of Investor Thought Leadership and Head of Research for Asia Pacific at CBRE.