Pricing, Interest Rate Challenges Test Investors in APAC Commercial Real Estate Markets

Real estate investors are pointing to uncertainties around pricing and rising interest rates as the main factors slowing capital deployment in Asia Pacific commercial property markets this year, according to JLL.

A survey of global and regional investors found that 78 percent identified pricing uncertainty as the biggest challenge to capital deployment ambitions in 2023, the property consultancy said in its Asia Pacific Investor Sentiment Barometer report. Some 70 percent confirmed that uneven and unpredictable interest rate policies globally would impact investment decisions.

The findings contrast with those from early 2022, when 82 percent of investors named competition for assets as their biggest capital deployment challenge in the region. The latest poll showed just 9 percent spotlighting competition as their chief concern.

“Investors are poised to adjust capital plans in 2023 as deployment challenges evolve to mirror the unpredictable global macroeconomic and central bank policy environment,” said Roddy Allan, chief research officer for Asia Pacific at JLL.

Japan and Singapore Win

With stability top of mind, respondents prefer the rock-steady markets of Japan and Singapore for real estate investments. Some 68 percent expect to increase Japan exposure this year, while 60 percent plan to up investment in the city-state. Australia and South Korea round out the top four at 53 percent each.

Among regional cities, Tokyo scored a trifecta as respondents named the Japanese capital’s multifamily, industrial and office sectors as the top three investment markets in which they intend to spend more during 2023.

“Investors we speak with will continue to favour the region’s more mature economies and will gravitate towards markets where they have previously deployed capital,” said Stuart Crow, CEO of Asia Pacific capital markets at JLL.

Logistics was identified by investors as the asset class likely to see the largest net increase in capital and loan exposure this year, with 64 percent of respondents planning to increase their investment in a sector underpinned by robust occupier demand and rental growth.

Some 46 percent of respondents plan to boost multifamily assets under management in 2023. Hotels are also attractive as travel restrictions fall away and tourism returns, with 32 percent of those polled expecting hospitality AUM to increase.

Short-Term Caution

JLL said that while uncertainty on pricing and interest rates will likely result in an ongoing decline in total capital deployed in 2023, longer-term optimism remains high.

Some 60 percent of investors polled expect volume to decline further this year from the low base of $129 billion deployed into APAC real estate in 2022, and 58 percent said benchmark rates will need to fall by 50-100 basis points before investment activity picks up.

Value-add strategies are in greater focus for 64 percent of respondents, up from 53 percent in last year’s survey, as investors rethink their risk tolerance in the changing environment.

Core-plus and opportunistic strategies will see more focus from 43 and 36 percent of investors, respectively, while just 20 percent said they would focus more on core strategies.