Persistent global inflationary trends, a sluggish economy, and deteriorating global indices have caused investors to choose to hold off on buying until the repercussions of the simultaneous global price increases become clearer. A decline in regional deal volumes is evident, with the number of deals in the third quarter in Asia Pacific down 38 percent year-on-year to $32.6 billion, marking the lowest third quarter volumes in a decade in the region. Mainland China accounts for the largest decline, down 23 percent year-on-year.
David Faulkner, President, ULI Asia PacificHe said: “Rising interest rates and a global economic slowdown are starting to affect regional asset valuations and changing the way investors evaluate potential deals. As a long-term inflation hedge, real estate will continue to attract capital, but it is also likely to undergo significant change over the coming years, due to The evolving economic environment and changes in the ways people use the built environment.
The major markets for investment prospects in the region are characterized by deep markets, liquidity and a journey-to-safety approach. Singapore, Tokyo and Sydney Continue to rank the top three markets. With the ongoing liquidity crisis in the real estate sector in mainland China and the ongoing pandemic restrictions, Singapore has benefited from redirecting capital that would otherwise be put into assets in mainland China and the Hong Kong SAR. Tokyo continues to enjoy a near-zero interest rate environment, ensuring lower borrowing costs and a more positive spread on the cost of debt. Despite the easing of COVID restrictions in the Hong Kong SAR, its status as the most expensive commercial and residential market in the Asia-Pacific region has left it vulnerable amid the current recessionary environment with high inflation.
Stuart Porter, property tax officer for the Asia Pacific region He said, “Persistent fragmented market conditions have enabled Singapore and Tokyo to retain their top positions as cities with brighter investment prospects even though the factors promoting each city are markedly different. When exploring opportunities in the region, investors should take a more cautious approach to their purchases.” New assets in some Asian markets and shifting their focus from traditional asset classes to a variety of niche areas provides a brighter outlook This includes defensive havens and new economy themes, which are likely to divert attention away from mainstream assets such as the office and retail sector, which have been popular traditionally.”
Investors are beginning to realign strategies toward defensive properties that are more resilient in the face of extraordinary economic pressures, and toward assets that can offer features such as index rent, shorter lease term, and reliable repeat income. The multi-family, hotel, senior citizen and logistics sectors are defensive havens. Sub-sectors of the new economy such as data centers, cold storage infrastructure, life sciences facilities, and self-storage space have been receiving increasing attention as recession-proof investment vehicles, due to a combination of factors: the growing acquisition of 5G networks, and the lack of structural supply needed to meet it. demand, and the evolution of more complex supply chains. With $16 billion in new capital raised for opportunistic strategies across these sub-sectors in Asia Pacific – more than triple the total amount raised for 2021 – logistics will likely remain flat for investors in 2023.
With inflationary pressures and interest rates increasing development risks, longer-term development projects are put on hold. Investors are also adapting their underwriting by making provisions for higher exit rates, reducing debt use, and buying materials up front, as well as using a “value engineering” approach — looking for economies through more rigorous analysis of design brief criteria.
The office segment remains the largest asset class in the region. Major assets in business regions and provinces are always in short supply and are always the targets of regional core funds competing for capital position. At the same time, wide pricing gaps between buyers and sellers are expected to persist for some time.
The full report is available here.
About the Urban Land Institute
The Urban Land Institute’s (ULI) mission is to shape the future of the built environment for transformative impact in communities around the world. The ULI has more than 2,600 members in the Asia Pacific region. For more information about ULI Asia Pacific, visit asia.uli.org.
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