Shortage of investible stock but opportunities in structural investment themes.
CBRE forecasts that due to Asia Pacific’s steady economic growth—which will continue to outpace the rest of the world in 2016—investment activity in the region will remain solid, although activity will be limited by asset pricing and availability, according to CBRE’s 2016 APAC Real Estate Market Outlook report.
“The region’s investment market will continue to see strong demand from real estate commingled funds and institutional investors. Institutional investors will continue to invest in Asia Pacific to increase their exposure to real estate for strategic diversification,” said Dr Henry Chin, Head of Research, CBRE Asia Pacific. “That said, Asia Pacific will enter a period of slower growth in the commercial real estate market with activity likely to moderate over the course of the year as it becomes more challenging to source investable stock able to meet investors’ target returns. Interest rates will remain low in 2016 so yields are largely to remain stable across Asia Pacific. However, we are expecting to see a mild yield expansion in 2017 together with the rise in interest rates.”
The economic slowdown in China—as well as higher-than-expected US interest hike rates, and currency volatility—will also remain a key concern for investors, given the scale of its impact across the whole region. However, macro trends of urbanization and the rise of the middle class remain largely unchanged and will continue to drive growth across Asia Pacific in the medium to long-term.
“There are structural investment-themed opportunities for investors to focus on in 2016, such as the growth of e-commerce, regional tourism and demographic changes. Demographic changes will create opportunities in niche sectors such as self-storage facilities, senior and student housing, and data centers,” said Dr Chin.
“Regionally, active markets will continue to be led by Australia and Japan, whilst India expects to see a positive year following the relaxation of FDI norms at the end of last year. China will also remain on the radar for most international investors although demand will be largely confined to tier I cities. Overall, the long-term outlook remains positive for the region,” he adds.
Office
Companies retain an optimistic long-term outlook towards Asia Pacific—as it is still a key growth market for many international firms—however, they remain cautious in the short-term. Weaker business sentiment and the decline in confidence among senior executives all point to office occupiers adopting more conservative strategies this year with cost saving at the top of the agenda.
Demand is expected to remain solid with the tech sector continuing to drive office demand in the majority of markets in Asia Pacific. Flight-to-value will increasingly replace flight-to-quality as the key driver for relocation and consolidation, particularly amongst MNCs, and will shape locational preference across the region.
Cheaper rents, new supply and improvement to infrastructure will prompt more occupiers in Asia to move to decentralized locations, especially in markets such as Beijing, Hong Kong and Shanghai. Elsewhere, Tokyo and major Australia markets will capitalize on recentralization due to the surge of new high quality supply in core locations, better infrastructure and/or attractive incentive packages. Grade A rental growth in Asia Pacific is forecast to weaken to 0.5% in 2016 from 2.7% in 2015.
Retail
High operating costs, particularly rents and labor in Asia, will ensure retailers turn more cautious in 2016. Many retailers will shift their strategic focus from expanding their store networks to rationalization; improving in-store profitability; and upgrading to better locations.
Leasing activity will diverge across markets, with Australia, Japan and New Zealand the most upbeat, whereas Hong Kong and Singapore will continue to struggle. Driven by ongoing urbanization and wage increases, Southeast Asia will also see solid leasing activity.
Demand across the region will be led by F&B retailers, while affordable and niche luxury brands will also be active. The rise of online shopping will continue to force shopping malls to embrace retail-tainment and adjust their trade mix to include more experience-oriented retailers to retain foot traffic.
Around 63.8 million sq. ft. of new shopping center supply is scheduled to be completed in 2016. Against the sluggish leasing demand and ample new supply, overall retail rents are forecast to experience a mild correction of below 1.0% in 2016.
Logistics
Occupier demand for logistics space is expected to remain solid in 2016. Despite the current challenges facing the export sector, the logistics market will continue to benefit from the rapid expansion of e-commerce as both traditional and Internet retailers increasingly go online to generate sales.
All markets, especially Australia, Hong Kong, Japan, Singapore, South Korea and Taiwan, are expected to benefit from this structural change. Other key trends this year will include consolidation for better operations and the conversion of older facilities into high-end logistics properties such as cold storage and consolidation centers.
Around 45.6 million sq. ft. of new logistics supply is scheduled to be delivered in 2016—approximately 54% of this will be in Greater Seoul, Singapore and Greater Tokyo.
