The 2021 outlook for Asia-Pacific real estate markets

For prime residential, 17 out of the 22 markets tracked envisage stable to moderate price growth in the New Year. Auckland's prime residential prices are expected to rise between 2% to 4%, outperforming its outstanding growth rate in 2020, as government-supported fundamental follows through.

Markets such as Tokyo, Hong Kong SAR, Singapore, and Sydney are also expected to strengthen further as we look forward to the potential re-opening of borders and subsequent return of foreign investors.

Trends to watch

1. The work-from-home experiment will leave a lasting impact
2. Logistics sector growth will be accelerated by e-commerce
3. Investors circling for distress may not find significant price reductions
4. Monetary policy to remain supportive of residential markets
5. Real estate will contribute to the ‘green recovery’
6. US-China relations remain important for the region

Sector outlook for 2021

Office

• Prime Office rents for Asia-Pacific fell 4.0% year-on-year while vacancy rose 1.8% to 12.6%
• Slow recovery expected for Asia-Pacific Prime Office, with rents forecast to decline between -3% to 0% in 2021
• Work-from-home experiment will leave a lasting impact, placing continued downward pressure on office rents

Commenting on the office market, Tim Armstrong, head of occupier services & commercial agency, Asia-Pacific, said: “While leasing activity has picked up in H2 2020 as markets have eased restrictions, we continue to see downward pressure on office rents. Whilst this trend will likely carry over into 2021, core markets such as Singapore and Hong Kong SAR will present attractive opportunities in the short to medium term for occupiers looking to strengthen their footprints before a likely stabilisation and improvement in economic conditions.”

Industrial

• All 17 Asia-Pacific markets tracked by Knight Frank are expected to see stable or improved rents in 2021
• E-commerce growth, healthcare, and pharmaceuticals will continue to drive logistics real estate value
• Bangkok’s logistics sector is one to watch as the sector remains resilient despite challenging economic conditions and social unrest, coupled with limited supply growth in the coming year

“The outlook for industrial markets heading into 2021 remains positive as the growth of online shopping will buoy demand for warehouse space, last-mile distribution centres, and data centres,” according to Armstrong.

Capital Markets

• Commercial transaction volumes were down 33% year-on-year to US$106 billion compared to the same period last year
• Cap rates have remained relatively stable as the continued availability of cheap credit has eased financing concerns for asset owners
• Safe haven markets are expected to attract greater demand as investors seek opportunities to de-risk their portfolios

“Defying expectations for price drops, many office assets – particularly in core locations – remain in demand, and those seeking distressed opportunities may be disappointed. While there have been some commercial assets traded at a modest discount in recent months, the optimistic view of a recovery in 2021 means that those looking for a bargain may have to move up the risk curve to find distress. With more uncertainty around the road to recovery back to pre-COVID levels, sectors such as hospitality and retail will be where these opportunities will lie,” according to Neil Brookes, head of capital markets, Asia-Pacific.

Residential

• 17 out of 22 prime markets tracked envisage stable to moderate price growth for 2021
• Auckland's prime residential prices are expected to normalise, with moderate growth of 2% to 4%, as government-supported policies slowly tighten to maintain a healthy market
• Domestic demand remains resilient in Singapore, with a stable price change of -1% to 4% anticipated for Singapore's prime residential prices

Kevin Coppel, managing director, Asia-Pacific, said: “2020 has been an unpredictable year for the Asia-Pacific real estate markets and one whose repercussions will be felt for years to come. In many ways, COVID-19 has accelerated trends already underway such as the growth in online retail, a move toward flexible working and a focus on more resilient supply chains. We expect these trends to continue apace even after the virus is brought under control in most markets.”

“The impact of these trends on real estate markets will be mixed. Industrial, logistics and data centres will remain robust, while the retail and hospitality sectors will find markets more challenging. Although overall demand for office space may be subdued, we expect prime office to remain steady with much of the adjustment felt in secondary office assets,” Coppel added.

Victoria Garrett, head of residential, Asia-Pacific, Knight Frank, said: “Markets are expected to further strengthen in 2021 as economic conditions improve across Asia-Pacific, supported by a period of low interest rates next year. The anticipated lifting of border restrictions during 2021 should see the return of foreign investors particularly in key gateway markets such as Tokyo, Hong Kong SAR, Singapore and Sydney.”

Want to hear more about Asia Pacific property markets as we head into 2021? Watch this webinar featuring four leading CEOs from businesses in the region, including Knight Frank, to hear their views on trends, business transformation and innovation in their sectors: