Asia Pacific’s commercial real estate (CRE) markets will continue to recover in the second half of 2021, with investment activity picking up significantly, regional retail rents stabilising in 2022, and office leasing demand gradually improving, according to CBRE’s Asia Pacific Real Estate Market Outlook.
COVID-19 variants prompting renewed restrictions in several markets remain the key risk to Asia Pacific’s economy and commercial real estate over the next 12 months, with the impact on growth momentum more significant in emerging Asia economies.
“We expect governments in Asia Pacific to retain accommodative monetary policies to support economies still in a fragile stage of recovery. An overall low interest-rate environment will continue to encourage investment in yield-accretive assets such as real estate, a trend we already see in strong investment volume growth that has outpaced leasing activity,” said Dr. Henry Chin, CBRE’s Global Head of Investor Thought Leadership and Head of Research, Asia Pacific.
In 2021, office leasing activity has gradually improved as demand recovered from last year’s low. Net absorption increased by approximately 20% y-o-y in H1 2021, driven by North Asia’s strong performance. Full-year leasing demand is expected to reach 10-15% y-o-y, up from a forecast of 5% y-o-y growth at the outset of the year. Resilient markets like Singapore, Taipei and Seoul are expected to see Grade A rents rise above pre-pandemic levels by 2023.
Some large occupiers may postpone long-term leasing decisions until clearer timelines emerge for a return to the office. For the rest of the year, regional office market conditions will continue to favour tenants as around 60% of full year new supply is due to come onstream.
“Office occupiers should take advantage of current leasing market weakness by pursuing lease negotiations or consider flight to quality relocations with an eye on futureproofing portfolios by building greater flexibility into leases; incorporating sustainability and wellness features into workplaces, or establishing and implementing clear guidelines for hybrid working,” said Ada Choi, CBRE’s Asia Pacific Head of Occupier Research, Data Intelligence and Management.
“On the landlord side, now is the time for owners to prioritise raising portfolio occupancy by offering attractive terms to secure high-quality tenants. Regular portfolio reviews and asset enhancements in response to the latest market trends can help landlords achieve rental premiums in the medium term,” she added.
Retail sales in most Asia Pacific markets surpassed or returned to pre-pandemic levels in H1 2021, with pandemic-driven consumption trends favouring daily necessity-driven neighbourhood retail, luxury, and sporting goods and activewear sectors. Their relatively resilient performance has in turn underpinned leasing demand and flight-to-quality relocations. Regional rents should stabilise in 2022 with rents in daily necessity-driven neighbourhood malls to display greater resilience.
Growing e-commerce penetration and an occupier focus on resilience ensured the Asia Pacific logistics market enjoyed an upbeat H1 2021. The period saw robust expansion by 3PLs and ecommerce platforms, with net absorption for the period reaching 35.6 million sq. ft. in Asia, the highest first half figure on record.
Asia Pacific logistics rents performed well in the first six months of the year, with an aggregate hike of 1.6% in the y-t-d. Accordingly, CBRE has revised its rental forecast upwards for markets including Beijing, Singapore, Melbourne, Hong Kong SAR, with rents in South Vietnam expected to stage a strong recovery.
Commercial real estate investment activity picked up significantly in H1 2021 as investors moved to deploy capital after a quiet 2020. Investment volume reached US$68 billion during the period, equivalent to 63% of full-year 2020 turnover, with acquisitions led by real estate funds, institutional investors including pension funds, insurance companies, sovereign wealth funds and REITs.
Despite COVID-19 variants, full-year investment turnover is expected to be 15-20% — up from a forecast of 5-10% at the beginning of the year.
“Bargain hunting investors may be disappointed as increased purchasing activity make discounted assets harder to find. With office leasing demand continuing to improve, rents expected to stabilise in 2022 and return to growth in 2023, investors can consider countercyclical opportunities in the office, retail and hotel sectors, “ said Dr. Chin.
“Prime office yields will likely remain tight, so investors should consider value-added opportunities in undersupplied markets such as Seoul and Singapore. On the retail front, neighbourhood retail assets and destination properties offer appealing opportunities, while there is an increasing volume of capital exploring ways to access the hospitality sector, particularly in countries with a large pool of domestic tourists. In the logistics sector, continued tight yields will make greenfield development an attractive route to capturing additional alpha,” he added.