Asia Pacific Capital Markets: 2023 Insights and Priorities Sponsored Feature

As the pricing reset and recalibration across real estate markets gather momentum this year, some markets are well into their journey of price discovery.

Markets repricing the quickest, and hence looking like better value, will attract investments in the first half of 2023 while the others may have to wait longer for the investors to return.

“If investors pick their markets, assets and strategies carefully, now is a time of opportunity. Gateway markets with safe-haven status and those with deep embedded levels of private capital will prosper. The living, logistics and life sciences sectors are well protected. Private buyers, largely equity driven, are typically immune to the market forces and continue to stay active despite the market flux. We see such investors grabbing some good opportunities in Asia Pacific amid today’s limited buy-side competition.”

Chris Pilgrim
Managing Director, Global Capital Markets | Asia Pacific

Australia

Insights and opportunities

• Opportunities presented by Premium and Grade-A office assets will increase as investors’ appetite grow in alignment with occupiers’ post pandemic preferences, ensuring yields remain resilient.
• Capital values for Premium and Grade-A stock is likely to exceed pre pandemic numbers across 2024 and 2025, while Grade-B landlords will benefit from repositioning assets.
• Industrial investors will see sharper pricing for assets with shorter lease expiry, which enable imminent rental growth upside.
• Retail has adapted quickly and was the first to reprice. Quality retail assets considered as community pillars in prime catchment areas likely to remain highly valued with income growth.
• To capitalise on localised shopping, landlords in regional malls are dedicating up to 40% of Gross Lettable Area for experiential retail, childcare and new features, reflecting the future of retail in enhanced community role.

“It’s about time the real estate industry evolved in terms of applying practical measures in relation to sustainability, taking a holistic approach that motivates investors, occupiers and real estate agents. This is largely being led by institutional investors who are driven to acquire assets with higher ESG credentials to meet the demands of their shareholders and market expectations, which in turn affects the REITs own value.”

John Marasco
Managing Director, Capital Markets & Investment Services | Australia

China

Insights and opportunities

• Logistics, business parks and life sciences with stable rental income will continue to be top choice for domestic institutional investors, including insurance and state-owned companies, pre-REIT funds.
• Foreign opportunistic investors are chasing value-added life sciences and rental apartment opportunities. Prime commercial assets with discounted prices will attract long-term capital.
• Shanghai is vigorously promoting tech industries, underpinning the strong demand for Business Parks. It’s ideal for landlords to actively adopt tenant rebalancing, with focus on industries with long term growth potential.
• It’s a good time to be more aggressive in grasping the window of opportunity to buy at low prices. In core submarkets – Caohejing , Zhangjiang and Jinqiao , and emerging submarkets like Zhoukang, both high profile projects and value-added assets are competitive.
  

  Jimmy Gu, Deputy Managing Director, Capital Markets & Investment Services , Colliers China

“Domestic investors will play a dominant role in new economy asset transactions in 2023. Even as the foreign investors take a wait-and-see approach in early 2023, we believe the transaction volume by foreign capital will recover in 2H 2023 due to strong economic recovery and steady offshore interest rates. Some foreign investors will leverage their capability and experience in China to raise RMB fund.”

Jimmy Gu
Deputy Managing Director, Capital Markets & Investment Services | China

India

Insights and opportunities

• Investments into alternate assets jumped over 4-fold since 2019, reflecting rising investor interest, especially in data centers. Data center stock in India is expected to double, creating several investment opportunities.
• Office sector continued its dominant streak in 2022 led by larger deals. As investors eye building a portfolio that they can bundle up as REITs, they see resilience in greenfield and ready assets.
• Multi-city deals continue to rise, with 44% share in investments in 2022. Most of the deals were entity-led for office and alternative assets.
• Global investors are attracted to the stable demand dynamics across office, alternatives and mixed-use sectors and opportunities there in operating and developing assets.
• Large global investors are partnering domestic firms to set up investment platforms. Office platform deals in 2022 surged to 42% of such deals.
• Domestic investors continue to bet on residential and retail assets and have become more active with over a fifth of total inflows.
  

  Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers India

“Investment inflows into Indian real estate remain resilient despite the global headwinds. Apart from the income-yielding assets, there is a strong performance in the residential, retail, and hospitality sectors, where 2022 witnessed some large transactions and is likely to see more traction in the years ahead. Performance credit, special situations, portfolio acquisitions, asset reconstruction, and related structures have been growing and are likely to attract more investments. During 2023, there is ample dry powder in the market across core and alternate assets.”

Piyush Gupta
Managing Director, Capital Markets and Investment Services | India

Japan

Insights and opportunities

• Demand for office space in Tokyo is recovering even as some occupiers downsize with increasing remote working.
• The significance of Grade-A office sector in the core investment strategy has remained consistent. The government owned Otemachi Place sale in 2022 was historic and the largest property deal with bids exceeding 400 billion yen.
• With rising e-commerce and supply chain reformation, end-user demand for modern warehouses remains high, and likely to continue beyond 2023. However, vacancies in recently completed warehouses remain in some markets, but are typically filled within a year of completion.
• Hospitality sector has weathered the storm thanks to government promotions of domestic tourism and financial assistance. Although transaction prices are not significantly low, there is active investment in anticipation of occupancy levels soon reverting to pre-pandemic levels.
  

  Hisakazu Iso, Deputy Managing Director & Head, Capital Markets, Colliers Japan

“In Japan, inflation is mild, and interest rates are not drastically rising. As a result, finance costs remain low, making the market favourable in ensuring a reasonable yield gap from a global perspective. Investors are seeing signs of the market bottoming out from stagnated conditions since the pandemic outbreak. As a result, investors have been increasingly interested in investing in Japan, and have a strong appetite for assets, particularly where stable income and viable investment scenarios may well be derived from shifting lifestyles.”

Hisakazu Iso
Deputy Managing Director & Head, Capital Markets | Japan

New Zealand

Insights and opportunities

• The flight to quality in the office sector has intensified. Tenant and investor demand is heavily weighted towards prime grade properties within premium precincts benefitting from high environmental credentials.
• In retail, the border reopening has resulted in renewed interest from international brands looking to either, make an initial entry to, or expand their exiting presence within the country’s premier retail locations. 
• An extended period of elevated tenant demand in the industrial sector has driven vacancy rates to historic lows fuelling record levels of rental growth. Development activity is increasing although several constraints remain. 
• As market values evolve, there could be an increased demand for asset valuation as owners assess their portfolios in a changing environment.
  

  Richard Kirke, International Sales Director, Capital Markets, Colliers New Zealand

“After a record low year of liquidity, 2023 looks likely to be the year when debt and equity markets stabilise. Whilst the current inverted yield curve has often signalled a recession it equally predicts a drop in interest rates, and a likely easing of cap rate deterioration. Pressure on the listed sector to raise capital whilst trading at significant 25% – 30% discounts to their NTA will likely see them selling some assets. Demand for premium grade office space and the entire industrial sector will see continuing increases in effective rents with investment demand remaining solid.”

Richard Kirke
International Sales Director | Capital Markets

Singapore 

Insights and opportunities

• Significant inflow of foreign capital continues, including some new entrants, a testament to Singapore’s attraction as a global investment destination. Investments are likely to pick up in 2H 2023 as the course of inflation and interest rates becomes more certain.
• Deals are likely to be more bite-sized as larger acquisitions involve an extended time frame and higher leverage, which are unfavorable in the current environment.
• As institutional investors take a back seat, private wealth will become increasingly prominent. Such capital, typically with less stringent underwriting hurdles, focuses on the luxury residential market, strata-titled commercial space and shophouses.
• For 2023, shophouses are expected to remain popular due to their palatable quantum, while the availability of mixed developments may remain limited. Interest in hospitality assets have also been picking up due to the recovery in tourism.
  

  Tang Wei Leng, Managing Director & Head Capital Markets & Investment Services, Colliers Singapore

“Despite yield spreads narrowing, for those looking to invest in quality core assets, Singapore properties still offer long term capital appreciation potential for decent total returns. There will still be attractive assets coming onto the market. It will only be a matter of time before asset owners have to make the choice between higher operating and refinancing costs or lowering their price expectations. Hence, buyers could position themselves for opportunistic buys or move up the risk curve to look at core plus or value-add assets.” 

Tang Wei Leng
Managing Director & Head Capital Markets & Investment Services | Singapore

South Korea

Insights and opportunities

• Data centers are emerging as an independent investment class. We expect the demand to continuously grow, supporting higher returns versus office, retail, and logistics. 
• Global investors are actively entering the Korean data center market and prefer Korea to other APAC countries due to cheaper electricity, stable ICT infrastructure, and government support.
• In the last five years, offices have made up about half the total Korean real estate investment. While there is persistent investors’ preference for offices, investors’ appetite is shifting towards logistics and hotels, and we expect this trend to continue despite rising interest rates. 
• To prepare for decreasing yields, investors need to shift focus to risk management to mitigate rising construction costs. 
• Investors are actively looking to raise capital through equity rather than loans.
  

  Sungwook Cho, Executive Director, Capital Markets & Investment Services, Colliers South Korea

“So far, offices and logistics have been the most favoured asset types delivering stable returns in a highly liquid environment. With investors now taking a more conservative approach amid continued loan rate hikes, we see the focus shifting towards alternatives like data centers where asset values are expected to increase faster over the long term. Demand for data centers is gradually outgrowing the supply given limited investment opportunities in the market.”

Sungwook Cho
Executive Director, Capital Markets & Investment Services | South Korea

We will continue to provide our clients and investors with the insights they need to navigate market shifts and capitalise on the opportunities that emerge as a result. Find out more on Colliers.com.