CBRE anticipates a positive outlook for commercial real estate in Asia Pacific in 2023, with investment activity to pick up in the second half of the year as inflation and interest rates in the region stabilise, according to the company’s 2023 Asia Pacific Real Estate Market Outlook.
CBRE foresees divergent economic performance across Asia Pacific region in 2023, with overall GDP growth at 3.6%. GDP growth in Mainland China is expected to increase to 4.9% as its zero-COVID policy has been lifted, while growth in Japan and Singapore is likely to be muted due to weaker export demand.
“We expect economic conditions in Asia Pacific to improve gradually during the year, creating a short window of opportunity for investors to buy high quality assets in the region before the market turns to the upside,” said Dr. Henry Chin, Global Head of Investor Thought Leadership & Head of Research, Asia Pacific for CBRE. “There remains a large volume of capital earmarked for real estate in Asia Pacific that will further boost activities by the end of year.”
“Despite the challenging economic environment, leasing demand for commercial properties is solid, although a slow start of the year is expected as companies take a prudent approach to real estate commitments,” said Ada Choi, Head of Occupier Research, Asia Pacific for CBRE. “As employees continue to return to the office and consumers resume physical shopping and travel, this will support commercial real estate fundamentals throughout the year.”
CBRE’s report details the company’s 2023 Asia Pacific market outlook for multiple sectors.
Capital Markets
CBRE forecasts total 2023 investment volume in Asia Pacific to remain flat or decrease by around 5% from 2022 levels. While yields will continue to expand, the magnitude will be insufficient to ensure a return to positive carry, given interest rates are not expected to peak until mid-2023. CBRE expects
capitalization rates—a measure of a property’s value in relation to its cash flow—to increase 75 to 150 basis points from peak to trough.
Office
Office leasing volume across Asia Pacific is expected to increase by approximately 5% in 2023, with growth in Mainland China at around 20%. New office supply is expected to rebound this year with completions equivalent to about 20% of current Grade A supply over the next three years. Office rents in most markets are forecast to remain below pre-pandemic levels by the end of 2023, except for Seoul and Sydney where gains will exceed 5% this year. The office market will continue to favour tenants, creating opportunities for occupiers looking for quality workplace in prime location with health and wellness features and other Environmental, Social and Governance (ESG) benefits.
Retail
More than 70% of retailers in Asia Pacific plan to open more stores in their existing markets in 2023. While most retailers prefer stores in prime locations, such as shopping malls in city centres and prime high street locations, there is a strong uptick in secondary retail locations, especially for tourist-driven
cities, such as Tokyo, Seoul, and Hong Kong SAR. Retail rents will likely return to mild growth in 2023, with prime retail hubs outperforming secondary locations. Hong Kong SAR is expected to be the best performing market in the region, with high street shop rents projected to rebound by 5-10% this year.
Industrial & Logistics
After more than a decade of strong rental growth, the Asia Pacific industrial and logistics sector is expected to see some moderation in demand, as e-commerce sales growth slows. Companies continue to diversify their sourcing and manufacturing locations across the globe to mitigate the risk of supply chain disruptions, benefitting Southeast Asia and India’s markets the most. More occupiers are outsourcing their logistic operations to third-party logistics companies to save costs.
CBRE forecasts new logistics supply to rise by 60% year-on-year to 200 million sq. ft. in 2023 as projects that were delayed last year come on stream, with supply highly concentrated in Mainland China, Korea, and Japan. This strong demand will be focused on modern logistics facilities in which new technologies can adopted to enhance operational efficiency and storage capacity. The rental performance of these facilities in prime locations will outperform those in decentralised locations.
Hotel
The return of Mainland Chinese tourists and pent-up demand from people who were unable to travel due to pandemic restrictions are expected to boost the hotel sector across the region, which is expected to return to pre-pandemic levels in early 2024. The recovery will be gradual and dependent upon the airline capacity and pricing, with Japan, Korea, and Hong Kong SAR the main beneficiaries.
