Market Outlook

Despite current economic headwinds and constraints on airline seat availability, hotel performance in Asia Pacific has continued to improve in 2023.

The recovery continues to be largely driven by domestic demand, although the return of mainland Chinese tourists at the beginning of 2023 has started to trickle into neighbouring markets with greater velocity in the past quarter.

The strong performance of hotels over the past 12 months relative to other asset classes, combined with the cyclical recovery and the nature of inflation hedging, is ensuring that investor appetite for operational real estate, such as hotels, continues to strengthen. Assets in tier I countries (Australia, Japan and Singapore) alongside resort markets are performing especially well.

This report was originally published in https://www.cbre.com/insights/reports/2023-asia-pacific-hotels-hospitality

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CBRE’s 2023 Asia Pacific Real Estate Market Outlook Mid-Year Review reviews the predictions we made at the beginning of 2023, and reveals our outlook for the rest of the year.

Our original forecasts from January were largely correct, although the subdued impact of mainland China’s re-opening has led us to push back predictions for the expected timing of the recovery by 6 to 12 months. While leasing momentum in occupier markets is strengthening, the investment volume is unlikely to recover before H1 2024.   

This report explores the key trends and forecasts that will shape Asia Pacific’s commercial real estate market for the rest of the year and beyond.

Economy
Core inflation along with a stronger than expected employment market have reduced the likelihood of a hard landing in the U.S., with CBRE expecting mild negative growth to occur in Q4 2023 and Q1 2024. With the upward interest rate cycle having been prolonged, rates are likely to stay high for longer.

Investment
Asia Pacific commercial real estate investment volume is unlikely to recover before H1 2024 due to insufficient yield expansion and the higher cost of finance. Japan will remain attractive to investors on the back of low interest rates and positive carry, and hence will continue to outperform. Investment sentiment elsewhere is expected to improve once the cost of borrowing starts to come down. Korea, which was the first market to implement interest rate hikes in the current cycle, is now witnessing an increase in investment activity now that the cost of finance has begun to fall.

Office
While CBRE’s market forecast has been largely accurate, the recovery of office space demand has lagged office-based employment growth. Office occupiers retain a prudent attitude towards portfolio planning amid the challenging macroeconomic environment. Although flight to quality and a focus on green buildings remain key trends, expansionary sentiment has been subdued.

Logistics
Although logistics demand continues to gradually moderate from pandemic-era highs, regional rents displayed resilience in H1 2023, with performance bifurcating between tightly supplied markets, such as Singapore (prime) and the Pacific, and oversupplied locations. Rental growth in markets with a supply shortage will nevertheless lose momentum as demand tapers off.

Retail
The tight job market and resumption of international tourism underpinned strong consumer spending in H1 2023, boosting expansionary sentiment among retail occupiers.

Hotels
However, the slow return of mainland Chinese tourists continues to weigh on the recovery; a trend that is also impacting hotels, with the recent rise in room rates now showing signs of plateauing.

This report was originally published in https://www.cbre.com/insights/reports/2023-asia-pacific-real-estate-market-outlook-mid-year-review

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The real assets sector in the Asia Pacific is undergoing rapid transformation due to technological advancements, shifting demographics, and evolving investor preferences.

Governments in the region are introducing regulatory reforms to promote sustainable development and safeguard stakeholders' interests. Despite challenges, the region's fast-growing economies present ample opportunities for smart investors, especially with the focus on alternative asset types and sustainability initiatives.

Find out more about key regulatory developments for different markets in the APREA Real Assets Bulletin. The bulletin covers ongoing challenges and the actions that are being taken to mitigate them.

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Global markets continued their journey of price discovery during Q1 2023, with investment activity subdued relative to previous years. The pricing alignment is most likely happening first in North America and Japan. For other locations, market yields/cap rates face another quarter of adjustments, before stabilizing.

Colliers Global Capital Markets - Insights & Outlook Report unveils the impact of interest rates on real estate pricing and investment volumes across the world. Aside from examining inflation trends globally, the report also analyses the impact on real estate pricing going forwards based on the Central Banks’ likely path on policy rates. 

Over the coming months, we will be looking at markets by sector and providing fresh Asia Pacific insights along with global markets research.

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