Shrewd investment strategies for the APAC property market

Find out how you should invest in APAC’s office, retail, and logistics sectors.

A CBRE report reveals that 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, CBRE says 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.

Here’s are some investment tips from CBRE:

OFFICE: FOCUS ON SELECTED COUNTER-CYCLICAL MARKETS 

Despite an improvement in office leasing activity, overall rental growth is likely to be mild. The office sector nevertheless continues to offer a range of cyclical opportunities, led by Singapore and Seoul, which remain in the upward rental cycle. With prime office yield remaining tight, investors are advised to consider value-added opportunities for upgrading well-located office assets in these markets. In the Pacific, the rental recovery will be most prominent in 2023. 

Capital values are likely to rise across Asia Pacific, with those in mainland China and Hong Kong SAR likely to exit from the downward trend that commenced in H2 2018, and register mild growth in 2022, supported by the stabilisation of prime office vacancy. Australia, Singapore and Korea will maintain steady growth in office prices on the back of solid investment demand from local investors. Capital values in Tokyo will remain under pressure as landlords will adopt an accommodative attitude towards securing tenants which will exert pressure on rents.

RETAIL AND HOSPITALITY: RE-EVALUATE GROWTH PROSPECTS 

While the retail sector in many markets continues to be impacted by the latest round of measures to contain the spread of COVID-19, overall demand is improving, especially among domestic retailers catering to local consumption. Neighbourhood retail continues to display resilient performance, underlined by the positive stock price performance for Hong Kong SAR and Australia listed retail REITs focused on this asset type. 

Investors are also advised to consider destination retail properties, especially in mainland China, where high-end shopping malls continue to perform well amid strong luxury and flight-to-quality demand. While secondary retail will take longer to recover due to challenges in attracting tenants, this may create room for investors to obtain better pricing by taking on vacancy risk. Investors are recommended to carefully select secondary retail assets, with properties in Tokyo located along secondary high streets in prime locations targetting F&B tenants likely to be of interest. 

Despite travel restrictions remaining in place, an increasing volume of capital is exploring ways to get into the hospitality sector. While recent lockdowns have had a negative impact on occupancy, the same metric has improved rapidly during periods when restrictions have been eased, indicating substantial pent-up demand from locals. Countries with a large pool of domestic tourists, such as Australia and Japan, are the focus for investors. 

LOGISTICS: FOCUS ON GREENFIELD DEVELOPMENT 

Strong inflows of capital to the logistics sector resulted in further yield compression in H1 2021, with the yield spread between office and logistics assets in Asia Pacific narrowing further to around 40 bps. Given the tight logistics yield, greenfield development will remain an attractive route to capturing additional alpha. Other options include upgrading ageing properties in strategic locations near large populations into advanced facilities supporting evolving urban logistics networks.