Asia Pacific Real Estate Market Outlook
Turbulence amidst the Recovery
Inflation to peak in 2022 before easing in 2023
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Inflation rate (%) y-o-y, quarter-end -2% 0% 2% 4% 6% 8% 10% 12% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2019 2020 2021 2022 2023 US Eurozone China Japan Australia Vietnam
ECONOMIC DOWNTURN FOLLOWED BY BROAD-BASED RECOVERY
Source: CBRE House View, Oxford Economics, January 2023.
Fed Funds Rate to crest in 2023, ending the steepest ever rate hike cycle
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U.S. Fed Funds Rate (%) – Fed’s median projection Source: Federal Reserve, CBRE Research, Oxford Economics, December 2022. 5.1 0 1 2 3 4 5 6 Q1 2022 Q2 2022 Q3 2022 Q4 2022 2023 2024 2025 Long run December projection September projection June projection Cumulative Fed rate increase in bps under hike cycles 0 50 100 150 200 250 300 350 400 450 500 0 90 180 270 360 450 540 630 720 810 bps day 1986-1989 1994-1995 1999-2000 2004-2006 2015-2019 2022Cumulative Fed rate cut in bps under rate cut cycles -700 -600 -500 -400 -300 -200 -100 0 0 90 180 270 360 450 540 630 720 810 bps day 1984-1986 1989-1992 2001-2003 2007-2009 2019-2020 ECONOMIC DOWNTURN FOLLOWED BY BROAD-BASED RECOVERY Current cycle
No growth in 2023
GDP growth in Asia Pacific to lose momentum in 2023
Recovery in 2023
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y-o-y
-4 -2 0 2 4 6 8 10 2021 2022F 2023F 2021 2022F 2023F 2021 2022F 2023F 2021 2022F 2023F 2021 2022F 2023F 2021 2022F 2023F 2021 2022F 2023F 2021 2022F 2023F 2021 2022F 2023F 2021 2022F 2023F USA Europe Vietnam India Australia Korea Singapore Japan Mainland China Hong Kong SAR
Source: CBRE House View, January 2023. ECONOMIC DOWNTURN FOLLOWED BY BROAD-BASED RECOVERY Real GDP
growth (%)
Steady increase in tourist arrivals expected
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ECONOMIC DOWNTURN FOLLOWED BY BROAD-BASED RECOVERY International tourist arrivals in major Asia Pacific markets (December 2022)5 10 15 20 25 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 International Arrivals (millions)
Mainland China re-opened its borders on January 8
Greater China South East Asia North Asia India Pacific
80%
from
Source: CBRE Research, December 2022
gap
2019 level
Asia Pacific investment volume by markets
Investment activity loses momentum from H2
Asia Pacific investment volume by investor type, 2021 vs. 2022
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20 40 60 80 100 120 140 160 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 US$ Billions Hong Kong SAR Mainland China Australia Japan Singapore Korea Other markets
2022
Dropped the most INVESTORS MOVE INTO WAITAND-SEE MODE Source: CBRE Research, January 2023 2023 Forecast -10 0 10 20 30 40 Property Company Corporation Private Property fund REIT Institutional US$ (bn) 2021 2022
BUYING AND SELLING INTENTIONS
Fear of recession and central bank policy top list of challenges
What are the major challenges facing real estate investment in 2023? (select top three)
Respondent origin
Fear of a recession and economic uncertainty
Central bank policy (e.g. Too aggressive with interest rate hikes, not enough quantitative tightening)
Mismatch in buyer and seller expectations
Mainland China, Hong Kong SAR, Singapore Australia, Japan, India, New Zealand Korea
Uncertain geopolitical landscape (e.g. Ukraine, East Asia)
Shift in credit availability and loan terms
Higher and/or more persistent inflation
Impact of currency fluctuation
Mainland China, Japan
0% 20% 40% 60% 80%
2022 2023
Source: 2023 Asia Pacific Investor Intentions Survey, CBRE Research, January 2023
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INVESTORS MOVE INTO WAITAND-SEE MODE Prime yields relative to borrowing costs (by Asia Pacific city)
Negative carry observed in almost all markets; biggest in Hong Kong
Office
Retail Logistics
Note: Yields of regional centres are used in Pacific markets. Vietnam adopts asking prime yields due to limited number of transactions. Source: Macrobond, CBRE Research, February 2023
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-15% -12% -9% -6% -3% 0% 3% 6% 9% 12% Vietnam* Hong Kong Mumbai Manila Auckland Singapore Seoul Beijing Guangzhou Shanghai Sydney Melbourne Kuala Lumpur Taipei Brisbane Tokyo Hong Kong Vietnam* Mumbai Guangzhou Singapore Beijing Shanghai Auckland Sydney Brisbane Melbourne Perth Kuala Lumpur Taipei Tokyo Vietnam* Hong Kong Mumbai Auckland Seoul Melbourne Shanghai Beijing Sydney Guangzhou Brisbane Perth Singapore Tokyo
Prime Yield (Q4 2022)
(as of
2022) Cost of borrowing (as
Spread against cost of borrowing Borrowing Cost (Q4 2022)
Yield
Q4
of Q4 2022)
Yield movement (Global Financial Crisis vs. COVID-19 pandemic)
Yield expansion remains limited
Source: CBRE Research, January 2023
Note: The GFC period yield spreads are calculated based on the peak to trough during the GFC; the 2023 yield spreads are calculated ba sed on forecasted 2023 yield and the trough during the 2021 – 2022 period.
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INVESTORS MOVE INTO WAITAND-SEE MODE -50 0 50 100 150 200 250 Seoul Hong Kong Singapore Melbourne Sydney Beijing Shanghai Tokyo Melbourne Beijing Hong Kong Singapore Sydney Tokyo Shanghai Sydney Melbourne Singapore Beijing Shanghai Tokyo Hong Kong Office Retail Logistics
bps
GFC period (2007-2009) COVID (Q4 2019-2023F)
INVESTORS
Top 10 cities for investment and preferred strategy
HCMC and Hanoi made it to top 10 for cross-border investment
Mumbai
Key strategy: Opportunistic
Key strategy: Core-plus to opportunistic
Key strategy: Core to value-add
Key strategy: Core-plus to value-add
Key strategy: Value-add to opportunistic
Key strategy: Value-add to opportunistic
Singapore
Key strategy: Core to value-add
Key strategy: Value-add to opportunistic
Key strategy: Across all strategies opportunistic
Key strategy: Across all strategies
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MOVE INTO WAITAND-SEE MODE Source: 2023 Asia Pacific Investor Intentions Survey, CBRE Research, January 2023 Top ten preferred cities Higher ranking than in 2022 2 6 7 4 Seoul Shanghai Hong Kong SAR Ho Chi Minh City Sydney Hanoi Melbourne Tokyo
10 9 1 8
3 5
Refinancing
pressure is high among mainland Chinese developers
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bond issuance
Source: Capital IQ, CBRE Research calculation, January 2023.50 100 150 200 250 300 2020 2021 2022 2023 2024 2025 US$ billion Maturity Issuance Global Property Market Faces $175 Billion Debt Spiral [link] Legoland Korea Developer’s Default Flags Property Risks Evergrande’s mega project Ocean Flower island with a total area of 381 hectares
Chinese Developers
and maturity by year
Asia Pacific Listed Real Estate Companies’ Interest Expenses Change from 2022-2023F Y-o-Y (%)
Some
Source: Capital IQ, CBRE Research February 2023
Note: 142 listed real estate companies with a market cap of US$1bn+ in Asia Pacific were analysed
*Korea – no listed real estate companies with a market cap below US$1bn, so all listed real estate companies for the market were included
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debt-burdened landlords may offload assets to improve their balance sheets
35% 29% 18% 16% 9% 8% 0% 0% 10% 20% 30% 40% Australia Singapore Korea* Mainland China Hong Kong SAR Japan India Weighted average (YoY increase)
RETAIL LEASING DEMAND REBOUNDS AS SPENDING RECOVERS
Most retailers intend to expand their store networks
Plans for physical store networks in 2023
Where do retailers intend to locate new physical stores in 2023?
71% Planning to expand/add new stores
14% No further downsizing or upsizing plans
15% Planning further closures/con solidation
high streets in city centres
Note: Figures may not add up to 100% due to rounding issues
Source: 2023 Asia Pacific Retail Flash Survey, CBRE Research, January 2023.
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23% 36% 48% 52% 37% 44% 47% 61% Secondary
Decentralised
Prime high
Shopping
in
2023 2021
neighbourhood and community malls
streets
malls
city centres
RETAIL LEASING DEMAND REBOUNDS AS SPENDING RECOVERS
Mainland China, Singapore and Hong Kong SAR will be the focus for retailer expansion
Top destinations for cross-border expansion
Return of tourists
Government stimulus
Rebound of Domestic consumption
Beneficiaries of currency depreciation
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Source: 2023 Asia Pacific Retail Flash Survey, CBRE Research, January 2023.
Singapore 4
Taiwan Vietnam Malaysia 9 Korea India Pacific 4 4 4 10 8 1 2 2
Hong Kong SAR Mainland China (tier I)
Japan
RevPAR & ADR for in major Asia Pacific markets (December 2019 vs December 2022)
Average Daily Rates (ADR) in most markets are well above pre-pandemic levels
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CONTRARIAN
-50% -40% -30% -20% -10% 0% 10% 20% 30% 40% Korea Australia Singapore Indonesia Thailand India Japan Malaysia New Zealand Hong Kong SAR Taiwan Veitnam Mainland China % Change RevPAR ADR
Source: STR, CBRE Research, February 2023
E-commerce growth normalises as shoppers return to
brick-andmortar
40%
35%
30%
25%
20%
15%
45% Korea Mainland China Singapore Hong Kong SAR Australia 2021 2022 Jan - Nov Ecommerce Penetration (Nov 2022)
Alibaba: Up 970% Amazon: Up 820% 5%
10%
Source: CEIC, National Statistics Bureau, Korean Statistical Information Services, CBRE Research, January 2023.
Note: Customer acquisition cost = sales and marketing expenses divided by the growth of number of active users
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stores
LEASING DEMAND REBOUNDS AS SPENDING RECOVERS Y-o-y change in online retail sales
acquisition cost index (base at FY 2015) 0 200 400 600 800 1,000 1,200 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Index (FY 2015=100)
RETAIL
Customer
Source: Capital IQ, CBRE Research, September 2022. 0%
RETAIL LEASING DEMAND REBOUNDS AS SPENDING RECOVERS
Retail rents to experience mild growth
2022 – 2023 retail rental forecast
Vietnam numbers are >30% in 2022
Growth to resume
Growth to slow
2022 2023F
Remarks: Retail rental growth refers to high streets in prime areas except mainland China, Singapore and Australia where G/F ren ts of shopping centres are reported. Pacific reports net effective rents of regional centres unless specified.
Source: CBRE Research, January 2023.
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-15% -12% -9% -6% -3% 0% 3% 6% 9% Hong Kong SAR Brisbane Taipei Perth SydneyCBD MelbourneCBD Shanghai Beijing Shenzhen Guangzhou PerthCBD Singapore Melbourne Sydney HanoiCBD HCMCCBD BrisbaneCBD Tokyo (Ginza) Auckland YoY Change
RETAIL LEASING DEMAND REBOUNDS AS SPENDING RECOVERS
Markets
Industrial (Prime) net effective rental growth vs spread Forecast as of January 2023* (CBRE House View)
Spread (as of Q4 2022)
Source: CBRE Research, January 2023.
Note: Vacancy is the latest available data for each market, and is represented by the size of the bubble within the graph Spread represents the risk premium, which is the difference between property yields and 10-year government bond yields Colour of bubble represents each different market
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with tighter industrial vacancy are generally seeing significantly higher rents and tighter spreads
Sydney 0.2% Melbourne 1.1% Brisbane 0.5% Perth 0.4% Beijing 18.0% Shanghai 9.3% Guangzhou 9.9% Shenzhen 0.7% Hong Kong SAR 2.5% Greater Tokyo 5.6% Greater Seoul 10.0% Auckland 0.6% Singapore 0.2% South Vietnam 16% North Vietnam 11% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16% -100 -50 0 50 100 150 200 250 300 350 400 Total Rental Growth (2023F & 2024F as of January 2023)
OFFICE LEASING DEMAND REMAINS WEAK
Asia Pacific Leasing Market Sentiment Index – weakened in late 2022
Note: indicators were revised in June 2021
Market sentiment is based on the simple average of net intentions (net % difference between positive and negative answers) of seven surveyed indicators.
Source: Asia Pacific Market Sentiment Survey, December 2022
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Negative Positive Net
Japan Australia Asia Pacific Hong Kong SAR Mainland China Singapore Korea South East Asia India
Intentions
LEASING DEMAND REMAINS
Note: Grade A rents represent rents in CBDs and core locations of each representative market.
Source: CBRE Research, January 2023
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2023F
A rent lower
level
2020-2022
Grade
than pre-COVID
Still a long way of rental recovery for most markets
OFFICE
WEAK Change in Grade A net effective rent in 2023F compared to 2019 (pre-COVID level)
OFFICE LEASING DEMAND REMAINS WEAK
Office occupiers plan for next generation workplace
Office satisfaction by location, Asia Pacific
Factors to encourage return to office Asia Pacific
78% want access to public transportation
73% want environmental features
City centre Established/ emerging disctricts
Suburbs
69% want free F&B options
65% want to track their co-workers
Source: 2022 Asia Pacific Live Work Shop Survey, CBRE Research, December 2022
71% want focus space
68% want improved technology
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75% 69% 55%
2023 Investment Strategies
Conformist
Target sectors and markets
• [Core] Purchase good quality office assets in gateway cities as a structural play.
• [Core to value-add] Consider offices in Sydney, Melbourne, Hong Kong SAR and Shanghai, which could offer an attractive entry point in 2023.
• [Core] Target prime modern logistics assets in Australia where vacancy is low and regional cities in Japan where yield spreads are attractive.
• [Core] Pursue multifamily assets offering attractive cash-on-cash yields in Japan and development opportunities in mainland China and Australia.
Contrarian
Target sectors and markets
• Realise profits by disposing of earlier investments in logistics and multifamily, especially as cap rates are expected to move out across the region.
• [Value-add to opportunistic] Look at hotels as tourism rebounds in 2023.
• [Value-add to opportunistic] Capitalise on attractive pricing for prime retail assets across major gateway cities and selected secondary locations in Hong Kong SAR, Tokyo and Osaka.
• [Value-add to opportunistic] Focus on mainland China for trophy office assets in Shanghai, and Beijing; business parks and modern logistics facilities and builtto-rent in Beijing and Shanghai.
Source: 2023 Asia Pacific Investors Intention Survey, CBRE Research, January 2023.
Vintage Target sectors and markets
• [Opportunistic] Identify value between public and private markets, especially in Australia, although the window of opportunity will be limited.
• [Value-add to opportunistic] Engage in debt investment including senior to junior loans in Korea, Hong Kong SAR, Singapore and Australia. Examine potential distressed opportunities in mainland China, Korea and Australia, where refinancing risk is high.
• [Core] Take advantage of the brief window of opportunity to buy high quality assets.
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Thank
you!
For more information, please contact:
Henry Chin, Ph.D. Global Head of Investor Thought Leadership Head of Research, Asia Pacifichenry.chin@cbre.com.hk
This presentation has been prepared in good faith based on CBRE’s current views of the commercial real-estate market. Although CBRE believes its views reflect market conditions on the date of this presentation, they are subject to significant uncertainties and contingencies, many of which are beyond CBRE’s control. In addition, many of CBRE’s views are opinion and/or projections based on CBRE’s subjective analyses of current market circumstances. Other firms may have different opinions, projections and analyses, and actual market conditions in the future may cause CBRE’s current views to later be incorrect. CBRE has no obligation to update its views herein if its opinions, projections, analyses or market circumstances later change.
Nothing in this presentation should be construed as an indicator of the future performance of CBRE’s securities or of the performance of any other company’s securities. You should not purchase or sell securities – of CBRE or any other company – based on the views herein. CBRE disclaims all liability for securities purchased or sold based on information herein, and by viewing this presentation, you waive all claims against CBRE and the presenter as well as against CBRE’s affiliates, officers, directors, employees, agents, advisers and representatives arising out of the accuracy, completeness, adequacy or your use of the information herein.
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Disclaimer 2023 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK
