CBRE foresees a continued challenging environment for the Asia Pacific commercial real estate investment market due to the prolonged interest rate hike cycle, insufficient price corrections, and a slower than expected recovery of mainland China, according to CBRE’s 2023 Asia Pacific Real Estate Market Outlook Mid-Year Review.
CBRE has revised its full-year forecast for Asia Pacific’s commercial real estate investment volume to a decline of 15%, before starting to recover in the first half of 2024.
Despite this challenging backdrop, investors can still capture cyclical investment opportunities as yields will continue to expand in the second half of 2023, with Australia expected to see the most significant yield expansion and Japan continues to outperform. There are also signs of green shoots in Korea underpinned by declining cost of finance.
“Investors’ firm stance towards pricing has resulted in a limited number of transactions. We expect the investment sentiment to improve once the cost of borrowing starts to stabilise or to come down,” said CBRE Head of Research (Asia Pacific) Henry Chin.
Office and Occupier
The office leasing sector in Asia Pacific is expected to decline up to 5% due to weaker demand in mainland China. As of March 2023, average office use in the region stood at about 65%, with attendance in North Asia now back at pre-pandemic levels.
“Flight to high quality and green buildings will remain prominent trends. With vacancy rising to a 20-year high in the first half of 2023 and expected to further increase for the rest of the year, the market will continue to favour tenants, as they will have ample upgrading options to choose from,” said CBRE Head of Occupier Research (Asia Pacific) Ada Choi.
Retail
The retail sector remains resilient with demand strengthening and vacancies in core locations being gradually filled. Most markets in Asia Pacific are expected to experience a modest rental recovery this year, with Hong Kong SAR, Tokyo and Singapore leading the way.
Industrial & Logistics
In the logistics sector, regional rents have proved to be more resilient in the first half of the year, although rental growth in tight markets, namely Singapore and the Pacific, is expected to slow.
Hotels
The slow return of mainland Chinese tourists continues to weigh on growth, with the recent recovery in room rates showing signs of plateauing. As of May 2023, international arrivals to key markets in Asia Pacific, excluding mainland China, stood at around 71% of 2019 levels.
