Asia Pacific’s steady economic growth should continue in 2019; however, key risks arising from ongoing trade tensions and tighter monetary policy will test the region’s resilience, according to CBRE. While Asia Pacific’s solid real estate fundamentals are encouraging, investors are expected to be more prudent in the face of financial market volatility.
“Commercial real estate markets across APAC remain stable, but their strength will be tested by unpredictable monetary policy and financial market volatility. We expect a greater degree of scrutiny from investors when making decisions,” said Martin Samworth, group president and CEO of advisory services, APAC/EMEA, CBRE.
Against this backdrop, property investors should rigorously evaluate potential acquisitions and focus on structural opportunities, while occupiers are advised to enhance the resilience of their real estate portfolios.
These findings are core to CBRE’s Asia Pacific Market Outlook 2019 report, which highlights major themes for real estate investment, office leasing, retail and logistics. Key trends include:
Capital Markets
- Take profits: Investors are advised to take profits from early investments and review their portfolios and investment strategies as higher prices, compressed yields and escalating borrowing costs translate to fewer options with justifiable returns.
- Go structural: Investors’ attention should be less focused on cyclical investment and more on sectors that benefit from ongoing structural trends, including modern logistics, and niche sectors such as data center and multifamily.
- Debt financing:Investors will have considerable opportunities to provide real estate debt financing, given conservative lending by banks.
- Prudent investing: Buyers will evaluate potential deals with caution due to the tighter yield spreads against the cost of borrowing and pricing that is well above the previous peak.
- Moderating volume: Asia Pacific commercial property investment turnover is expected to reach around $120 billion in 2019.
Office
- Consistent demand:Office markets across Asia Pacific will operate within a stabilized pace of expansion. Technology companies and flexible space operators, including coworking, will support demand for office space.
- Co-working fragmentation:Financial performance will be key for operators. CBRE expects operators to focus on improving occupancy rather than opening new centers, which could lead to a slower demand growth and consolidation in 2019.
- Peak development: New developments are peaking, with nearly half of new office supply concentrated in non-core or decentralized areas — particularly in Shanghai, Bangalore and Delhi NCR.
- Moderating rents:Overall, the region is expected to record slower rental growth compared to the five-year average — apart from Singapore and Guangzhou. Perth is expected to see the strongest rental recovery.
- Space redefinition:Tenants will continue to redefine the usage of office space. Real estate assets will become more agile. The use of flexible space to complement core portfolios will be accelerated as tenants respond to the changing business environment and minimize costs and liabilities.
Retail
- Changing dynamics:A move towards an omnichannel strategy — where retailers adopt holistic approach in formulating their online and offline sales channels to maximize brand experience. Retailers will still maintain a physical presence with enhanced service offerings, while looking to slow the pace of store network expansion or reduce the number of stores.
- New relationships:Landlords will benefit from revolutionizing their relationship with tenants and broaden their trade mix with more elements of entertainment. It will become increasingly important for landlords to transcend the traditional role of space provider and partner with tenants in executing their marketing and growth strategies.
- Soft rentals: Rental growth is expected to remain soft in 2019. Growth will mainly be driven by prime locations, with lower quality assets expected to struggle.
Logistics
- Overperform:This segment of the market will see a sustained uptick in activity, prompted by demand for urban logistics spaces to accommodate to the shift toward omnichannel retail.
- Technology-enabled:Tenants must embrace technology to improve supply chain operational efficiency. Landlords are advised to upgrade industrial and logistics portfolios to ensure they remain competitive.
- Growth markets: Logistics rental growth is expected to be led by Melbourne, Shanghai and Beijing, with overall regional growth rate at about 3 percent.
Regionally, the commercial real estate market is expected to see slower growth in 2019. Across capital markets, office, retail and logistics sectors in 2019, the pace of expansion is anticipated to be slower — a reflection of heightened prudence amongst the various investor classes.
Dr. Henry Chin, head of research for APAC/EMEA at CBRE, stated both investors and tenants will seek to ingrain agility into their strategies, “whether you are an investor seeking portfolio diversification or a tenant looking to enhance efficiency, all market players will be looking for options that grant them flexibility.”
