Top 10 real estate trends and insights impacting Asia Pacific in 2023
The real estate market in Asia Pacific is expected to see a number of trends and shifts in 2023, driven by economic and demographic factors, and changing consumer preferences and behaviours. Here are a few of the significant trends to keep an eye on.
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1. This year is an inflexion point for Asia-Pacific
2022 proved to be a challenging year, characterized by heightened geopolitical tensions and an end to over a decade-long easing of monetary policies.However, with much of the known risks largely priced in, there remains potential for fundamentals to surprise on the upside in 2023. With China relinquishing its zero-COVID policies, economic growth in the region could surpass expectations.
2. Despite rising mortgage rates, price correction in residential market unlikely to match past downturns
The rise in construction costs, tight labour markets, a robust rental performance due to returning demand, and the current squeeze in supply pipelines will put a floor to residential prices in several key gateway urban centres in the region.
3. Continued interest for trophy homes among Asians
Prime residential properties in the world's gateway cities, often seen as safe havens, will continue to thrive, attributed to sustained demand from HNWIs for their wealth preservation qualities. The resumption of travel brings back Asian buyers and investors, who continue to show strong interest in international gateway markets. Despite tightened lending regulations and increased foreign investment taxes and stamp duties in some of these cities, international investors still find them relatively reliable and resilient in times of uncertainties.
4. Phenomenon of lease renewals likely to continue dominating Asia-Pacific office markets
Catalysed by the weakening economic and operating environment, occupiers facing incoming lease expiries will remain cautious and be more inclined to renew their leases with shorter tenures.
5. Recalibration and optimisation of office workspaces to continue
The increase in shadow spaces and the evolution of hybrid work and workspace strategies are signs that the region's office markets are still grappling with post-pandemic trends. The continued rationalisation of office footprint across the region will result in a sustained flight-to-quality trend.
6. Demand for logistics space to normalise
As consumers scale back their purchases online amid a subsiding pandemic and rising inflation, e-commerce companies are bracing for slower sales. Higher borrowing costs and looming recession fears are expected to lead to a more cost-conscious business environment. Occupiers who adopted the ‘just-in-case’ approach will reassess their portfolio to consolidate the space required to minimise CAPEX.
7. Supply chain reconfiguration and the emerging Life Sciences sector will shape logistic demand in the post-pandemic landscape
Supply chain bottlenecks experience during the pandemic have cast a spotlight on the importance of supply chain diversification.This has propelled the regionalisation of trade within Asia-Pacific and led to the development of more resilient supply networks. Demand will remain robust in the region's manufacturing hubs, supported by "China Plus One” strategies and the continued structural shortage of prime logistic assets in the region. Concurrently, healthcare and life sciences investments will underpin the demand for high-specification facilities.
8. Period of transition for investors reviewing their strategies in a rapidly evolving environment
The sharp increase in the cost of debt has led to a repricing of risk assets. Volatility will hold up transactions in the short term as investors seek price discovery in the various markets. With central banks still on a hiking cycle, investors preferring to remain side-lined will constrain deals. However, the potential for the interest rate cycle to peak amid reopening dynamics will revive investors' appetites in the latter part of 2023.
9. Sustained pivot to new economy assets
Commercial real estate that captures megatrends, exhibits diversification benefits, and offer defensive characteristics will see strengthened investor interest. From data centres to living sectors, new economy assets sit at the crossroads of the region's digitalisation trends and wider demographic changes. As with most alternative sectors, the structural shortage in supply and higher yields will position returns to outpace inflation.
10. Increased dominance of private and sovereign investors
After over a decade of abundant capital, the rapid reversal in macroeconomic fundamentals is changing the playbook for real estate investment. In a rising rate environment, investors less reliant on debt will have an edge. With longer horizons and deep pockets, private and sovereign investors are prepared to move quickly to secure prime assets while there is limited competition.