Which sector will buck the trend of falling real estate investment volumes this year?

APAC investment volumes could drop by up to 10% this year, but capital inflows to this sector could rise 6%.

Asia Pacific real estate investment volume is expected to fall 5 to 10% in 2023, moderating further after a year-on-year decline of 25% in 2022. According to new research from global real estate consultant, JLL, this forecast is due to the tumultuous economic and financing conditions weighing on sentiment.

The hotel sector, however, is expected to buck the trend with capital flows into hotels and hospitality assets expected to rise 6% in 2023. This is following a 10 to 15% increase in 2022 as the sector benefited from border reopening.

“Optimism driven by the idea of the pandemic coming to an end has slowly given way to caution amid concerns about inflation, interest rates and geopolitics. While the Asia Pacific region is likely to fare better due to more resilient domestic demand, it will not be left unscathed from the broader challenges. As a result, there will be increased pressure on policymakers to delicately balance support measures as uncertainty persists,” says Roddy Allan, Chief Research Officer, Asia Pacific, JLL.

Investments

Despite a slackening in fundraising activity, JLL anticipates investors will look to sectors benefiting from structural tailwinds and higher potential returns – namely data centres, logistics, multifamily and in a slew of scheduled greenfield projects in emerging markets including India and Southeast Asia. Japan, according to JLL, will emerge as the most attractive investment destination, due to Yen weakness coupled with low interest rates. Singapore’s status as a safe haven and sound property fundamentals will continue to attract capital and Australia’s highly transparent framework and low beta characteristics to draw core investors.

Emerging ESG trends to look out for in 2023

JLL’s research shows the majority of organisations (74%) would be willing to pay a premium for leasing a building with leading sustainability or green credentials, and 22% said they already have. With an acute shortage of green and efficient buildings, property owners who undertake retrofitting projects can benefit from higher rent, reduced financial risk, improved access to capital at favourable rates, and better prospects for attracting and retaining tenants.

Opportunities lie in the rental premium for green certified buildings, which has emerged due to a supply-demand gap. According to JLL research, occupiers in Asia Pacific aspire to have market-recognised sustainability certification for at least half of their portfolio by 2025. However, the current supply of green certified buildings at 40% for Grade A office stock is insufficient to meet the ambitious net zero targets set by occupiers.

Offices

JLL’s survey reveals that 77% agreed the office will remain central to their organisation’s long-term ecosystem, but high-quality, premium assets are significantly outperforming the rest of the market as occupiers look to upgrade their space.

Logistics & Industrial

E-commerce-related demand is holding up and is still expected to be a key long-term driver for warehouse space, particularly in emerging Asia where the growth story has a long way to run. This has fuelled a building boom in parts of the region with 25.9 million sqm of new stock expected to come on stream in 2023 alone to meet the growing needs.

“The 2023 outlook for Asia Pacific’s real estate markets is clouded as uncertainty persists. While the near-term outlook for real estate appears challenging, it also presents many opportunities. Disruptions to the economy should prove relatively short and shallow, and market participants should be thinking beyond this period to take advantage of opportunities that lie ahead,” says Allan.

Get the full report here.