Rising inflationary pressures and interest rate increases slow down investment activity in Asia Pacific region
According to CBRE's newly released 2022 Asia Pacific Mid-Year Real Estate Market Outlook, Asia Pacific's commercial real estate markets are predicted to moderate in the second half of 2022 as rising inflationary pressure and interest rate increases provide the major challenge to economic growth in the region.
The lack of clarity around the full re-opening of mainland China continues to cloud the regional economic outlook. This combined with a slowdown in global economic growth, has prompted CBRE to downgrade slightly its regional gross domestic product forecasts for 2022.
While CBRE expects Asia Pacific to experience continued headwinds until mid-2023 as a result of the global economic slowdown, the region is likely to avoid a recession. Mainland China and Hong Kong SAR are expected to lead the region's economic recovery, likely commencing in the first half of next year. Accommodative monetary policies in mainland China and Japan will continue to support growth in the region.
"Rapid inflation, prolonged zero-Covid policies, the Russia-Ukraine war, and faster-than-expected interest rate increases have impacted the Asia Pacific region to a stronger degree than anticipated at the start of the year," said Henry Chin, Global Head of Investor Thought Leadership & Head of Research, Asia Pacific. "While additional economic stimulus in China and the reopening of borders and recovery in international travel will be an impetus to growth, real estate will be characterized by moderate demand, slower decision-making, rising fit-out and construction costs, and generally lower investment activity."
With Asia Pacific leading the global return to office, these assets remain investors' preferred target. Newly built and well-located high-quality office and logistics properties are sought-after as investors seek resilient assets. Retail and hotel assets are expected to attract stronger demand in H2 2022 as border controls continue to loosen. High-quality retail properties in tourist hubs will also be on investors' radar.
"Investors across the globe are acting cautiously when it comes to new acquisitions, but there is still capital sitting on the sidelines looking for right opportunities. While the ongoing economic uncertainty could put moderate pressure on prime property values, we believe the window of opportunity for buyers could be short," said Greg Hyland, Head of Capital Markets, Asia Pacific.
Hybrid working is becoming a new norm for many companies, especially multinationals, as they look to improve space efficiency. Office rents are expected to remain strong in major markets such as Seoul, Singapore, and Taipei, while Chinese cities will see slower than expected rental recovery due to the large-scale lockdowns of cities in H1 2022.
"Occupiers are relocating to buildings with better quality or location. In many cases, the relocation is associated with workplace transformation for a more flexible, hybrid working style. The need to operate from an ESG-friendly building is also spurring relocation to green buildings," said Ada Choi, Head of Occupier Research & Head of Data Intelligence and Management, Asia Pacific.