Opportunistic strategies are gathering traction with Asia Pacific investors in 2023, as they seek higher return to compensate for higher financing costs, according to CBRE’s 2023 Asia Pacific Investor Intentions Survey.
The survey, which covers all asset classes, finds that nearly one third (31%) of investors will target opportunistic strategies, distressed assets and non-performing loans this year to take advantage of current market conditions.
“Despite healthy levels of fundraising, most investors are adopting a cautious approach as they look for signs of yield expansion and the interest rate tightening cycle to stabilise,” said Greg Hyland, Head of Capital Markets, Asia Pacific for CBRE. “We are expecting investment activity to accelerate in the second half of the year.”
Tokyo is the preferred target market for cross-border investment for the fourth consecutive year, followed by Singapore. Vietnam continues to benefit from its status as a “China plus One” destination, with both Ho Chi Minh City (#3) and Hanoi (#9) in the top 10 target markets for the first time.
With the reopening of border with mainland China and more reasonable valuations, investors once again find Hong Kong SAR attractive, making the city to the top five for the first time since 2020.
“Industrial and logistics continues to be the most preferred asset class for Asia Pacific investors, followed by office and residential. While there is a drop in interest in office largely due to concerns about the current level of yields, the survey finds that core investors still opt for offices as their top choice. Investors are showing much stronger interest in the residential sector, especially multifamily/built to rent,” said Dr. Henry Chin, Global Head of Investor Thought Leadership & Head of Research, Asia Pacific for CBRE. “We expect yields to expand further across all asset classes in 2023.”
More than 60% of investors expect to find discounts in retail and Grade A offices in 2023. Despite logistics being the most preferred asset class, only 11% of the investors are willing to bid above the asking price this year, compared to 35% in 2022.
Other key highlights from the survey include (conducted in November and December 2022):
• The majority (93%) of institutional investors expect allocations to real estate to increase or remain stable in 2023.
• Investors cite the fear of a recession, interest rate hikes and a mismatch in buyer and seller expectations as their greatest challenges this year.
• Investors prefer high quality assets in prime locations across all sectors, as these assets have strong tenant demand drivers and resilient cash flow.
• Only 5% of investors say they will invest in alternative sectors, with healthcare-related properties, including life sciences and medical offices, the most preferred, overtaking data centres for the first time.
• Around 60% of investors intend to use ESG criteria in making investment decisions. On the other hand, 40% plan to delay their ESG adoption due to increased costs and current economic conditions.
