Real estate investment in Asia-Pacific is projected to drop 5 to 10 percent year on year (yoy) in 2023, following a steep 25 percent yoy decline this year, amid tumultuous economic conditions that are weighing on sentiment.
According to a study by real estate consultancy JLL, hospitality properties are the only real estate assets likely to book steady growth next year, as capital inflows toward hotels are expected to rise around 6 percent yoy, despite slowing down from this year’s 10 to 15 percent growth thanks to border reopening in many Asia-Pacific countries.
JLL estimates that real estate investors will also look to sectors benefiting from structural tailwinds and higher potential returns, such as data centers, logistics and a slew of scheduled greenfield projects in emerging markets, including India and Southeast Asia.
Japan, meanwhile, is predicted to emerge as the most attractive real estate investment destination thanks to a weakening yen coupled with the country’s low interest rates.
Singapore’s status as a safe haven and its sound property fundamentals will continue to attract investors, while Australia will likely draw core investors because of the country’s highly transparent framework and low beta characteristics.
JLL chief Asia-Pacific research officer Roddy Allan said optimism driven by the idea of the pandemic coming to an end had slowly given way to caution amid concerns about inflation, interest rates and geopolitics.
“While the Asia-Pacific region is likely to fare better due to more resilient domestic demand, it will not be left unscathed from the broader challenges. As a result, there will be increased pressure on policymakers to delicately balance support measures as uncertainty persists,” he explained, as quoted in a press statement released on Wednesday.
In 2023, 74 percent of organizations in Asia-Pacific said they would likely be willing to pay a premium for leasing a building with leading sustainability credentials, and 22 percent said they already had.
With an acute shortage of green and efficient buildings, the study found that property owners who undertook retrofitting projects could benefit from higher rent, reduced financial risk, improved access to capital at favorable rates and better prospects for attracting and retaining tenants.
Opportunities lay in the rental premium for green certified buildings, the study contended, which had emerged due to restricted supply. Industry tenants in Asia-Pacific aspired to have market-recognized sustainability certifications for at least half of their portfolio by 2025.
However, the current supply of green-certified buildings, at 40 percent for Grade A office stock, is insufficient to meet the ambitious net-zero targets set by tenants.
In addition, e-commerce-related demand is expected to remain a key long-term driver for warehouse space, particularly in emerging Asia.
This has fueled a building boom in parts of the region with 25.9 million square meters of new stock expected to come on stream in 2023 to meet the growing needs.
Allan said the overall 2023 outlook for Asia-Pacific real estate was still cloudy as uncertainty persisted. But while the near-term prospects appeared challenging, the situation also presented many opportunities.
“Disruptions to the economy should prove relatively short and shallow, and market participants should be thinking beyond this period to take advantage of opportunities that lie ahead,” he noted.