Asia-Pacific property markets set to rebound in 2022 (Knight Frank)

December 6, Singapore – The Asia-Pacific region is set to continue its recovery from the pandemic, despite renewed uncertainty caused by the Omicron variant. Economies that have been hampered by lockdowns in 2021 will likely exhibit above-trend growth next year, according to Knight Frank’s latest report, Asia-Pacific Outlook Report 2022: Optimism and Opportunities Ahead.. 

Christine Li, head of research, Asia-Pacific, said, “The world and the Asia-Pacific region are now better equipped to cope with new variants, as vaccinations and oral medication for COVID-19 continue to gather pace. Although we are witnessing some knee-jerk reactions, over the next 12 months, we still expect most governments to move beyond lockdowns and transition to an endemic stage.”

“A wide range of indicators are pointing towards rebound and recovery in 2022, as Asia-Pacific enters a new cycle of growth driven by low interest rates and high inward investment. With these fundamentals in place, pent-up demand will fuel value growth across the region’s residential and commercial sectors,” Li added.

At a sector level, the report predicts an uplift of 20% in commercial transactions next year and a growth rate of between 3-6% for residential prices. Rents in the logistics sector are forecast to increase 2-3%, while office rents appear to be bottoming out to record more modest growth.

“As COVID-19 restrictions are relaxed, pent-up demand will support a solid recovery across the region. However, the trend will not be linear, and inevitably there will be bumps along the way in the form of new variants, supply disruptions, or ad-hoc restrictions. Fortunately, such setbacks are likely to be temporary and not distract markets from a solid broad-based recovery,” said Kevin Coppel, managing director, Asia-Pacific.

Sector Outlook

Office

• Job growth in the tech sector will continue to be a key driver of office leasing activity
• Co-working will continue to gain momentum from enterprise client demand as corporates adopt longer-term hybrid work strategies
• The region’s office market is expected to remain tenant-favourable, providing a window of opportunity for occupiers to capitalise on for better lease terms

Commenting on the office market, Tim Armstrong, global head for occupier strategy and solutions, said: “We are seeing an increased commitment to hybrid flexible workspaces as a part of occupiers’ strategies as we transition towards a COVID-endemic Asia-Pacific. Occupiers are recognising the impact of flexibility in facilitating employee engagement and cost optimisation.”

Logistics

• Rising transportation costs and the need for more resilient supply chains are driving companies to increase their logistics footprints to house larger inventory buffers
• Rental growth expected to increase by an average of 2-3% as supply for logistics spaces is unlikely to keep up with growing demand
• 13 out of 16 APAC markets tracked are expected to see increasing rents, with Auckland expected to see the highest rental growth.

“The quest to reconfigure supply chain strategies to become more resilient will result in sustained demand for modern logistics facilities, which will keep rents on an upward trend,” noted Armstrong.

 

Capital Markets

• APAC transaction volume is expected to see an uplift of 20% in 2022
• The office sector could potentially attract more than 60% of inbound investment into the APAC region
• The US and Singapore will continue to be the top sources of capital spend

Neil Brookes, global head of capital markets, said, “Economies forging a path towards the next phase of endemic living will set the stage for a sustained resurgence of cross-border investment into real estate. Competition for assets will remain intense as investors look to deploy record dry powder accumulated, which will keep yields down.

“While core office with long lease expiries and logistics assets will be keenly sought after, we expect activity to turn active across all asset classes as the rotation towards riskier sectors gain traction. There will be ample scope for investors to be creative in the new normal and look towards value-add or opportunistic plays to generate alpha,” Brookes added.

The COVID-19 pandemic, in its protracted state, has put a spotlight on many real estate assets’ strengths and weaknesses, according to the report. Investors are increasingly shunning older assets regardless of geographies and focusing on assets that provide a resilient income stream.

Emily Relf, global head of capital strategies, said, “With yields compressing in Europe to record lows, overseas investors are looking to re-weight their portfolio from low-growth markets in Europe towards higher-growth Asian markets. Assets with strong ESG credentials will attract greater demand. Indeed, Knight Frank research shows a positive premium on sales price for green-rated office buildings in London, Melbourne, and Sydney, indicating that demand for green buildings is a global phenomenon and set to grow.”

Residential

• The unorthodox access to international talent is likely to skew homebuying preferences across Asia-Pacific’s gateway markets in the long-term
• Ease of working from home, health, and wellbeing are essential features in a post-pandemic world
• 18 of 24 APAC cities saw price growth since the beginning of the pandemic and are expected to grow further in 2022

“Residential markets across the Asia-Pacific region could continue to strengthen in 2022 as the region starts to recover in the endemic phase. With more quarantine-free travel lanes reopening, foreign buyers could return to key gateway markets sooner than expected,” said Victoria Garrett, head of residential, Asia-Pacific.

“Now is the best time for domestic buyers to pick up their dream homes, given the potential policy interventions that could hamper purchasing prospects in 2022,” Garrett concluded. 

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