Asia Pacific Real Estate Investment Tips 2023 (Savills) 11 January 2023
Storm Clouds Gather
Asia Pacific property markets face a number of battle fronts in 2023. The first is external to the region as the war in Ukraine combined with post-COVID supply chain disruption has fueled inflation causing central banks to raise rates and in doing so cool growth. This is nowhere more apparent than in the US and Europe, the final demand markets for Asia’s exports. The second is within the region itself and concerns its largest economy, China, which accounts for 53% of the region’s GDP and almost a third of all manufactured products. A low growth and, thanks to zero-COVID policies and a more assertive political direction, more isolated China, is depriving real estate capital of a universe of investment opportunities while funds flowing out of the Mainland have slowed to a trickle. The final battle front is longer term and structural and concerns how people work and shop and how new technologies are tearing down the old boundaries between asset classes while creating new ones in an orgy of creative destruction. Something familiar to markets globally.
A Silver Lining
Asia is not alone in facing a challenging 2023 of course, a sub-par year in terms of growth and some way from pre-COVID norms. However, measured against the yardstick of the global economy, and in particular the US and Europe, Asia’s strengths become apparent. While North America and Europe face recession in late 2022/early 2023, Asia Pacific will see modest growth in many jurisdictions, higher rates in some. Interest rates are also expected to rise more slowly as inflation fails to make the inroads it has elsewhere. Even geopolitical tensions are moderating thanks to the G20 Bali Summit. A raft of trade agreements, temporarily grounded by COVID, should also help accelerate the post-pandemic resurgence as supply chains mend and the region’s low-cost base reinforces its competitiveness. While ‘alternative asset classes’ are proliferating in the region, other disruptions such as flexible working and online retail are making fewer gains than elsewhere while large parts of Asia Pacific are still enjoying the luxury of catch-up growth, delivering outsized economic gains in, for example, Southeast Asia and parts of India.
Rays of Light
Looking ahead into 2023, it is unlikely that any of the three battle lines will be redrawn, but this doesn’t mean a dearth of opportunities, quite the opposite. In an inflationary environment Asia’s shorter lease lengths should prove appealing while ‘index-linked’ defensive sectors such as self-storage, student housing, multi-family housing and senior living should find an audience. The ‘New Economy’ remains as fresh as ever.
In Japan, low interest rates and a weak Yen will continue attracting overseas capital with logistics assets, and multi-family housing all being targeted while hotels should prove to be an actively traded asset class in 2023.
Singapore meanwhile is emerging as a ‘geopolitical safe space’ in the region, building its financial services base, attracting private family offices, and benefiting from the exodus of talent from Hong Kong. Vietnam continues to benefit from its dismantling of COVID restrictions and ‘China plus one’ and is expected to post enviable growth of 4% in 2023.
In Australia, Asia’s principal resource-driven economy, high yields, strong growth compared to major markets and a weaker Australian Dollar should attract offshore investors. Sectors to watch include logistics, core offices and a range of alternatives.
In China, as elsewhere in the region, life-sciences, data centres, logistics and cold chain investments have lost none of their allure as structural drivers remain compelling. Even with low inflation and low interest rates, debt burdened firms may deliver distressed assets, but pricing remains contentious.
And a look at 2023 wouldn’t be complete without mentioning ESG. Love it or hate it, it’s here to stay and expect to see growing ESG commitments, and more ESG initiatives as part of investment strategies across all asset classes.
This article was originally published in https://www.savills.co.jp/research_articles/167577/209583-0
