Things look up for real estate investment in Asia Pacific: JLL

It is a commercial and residential redevelopment of the existing JCube Residence in Jurong East. The developer will bring a host of new experiences and amenities to Jurong East, enriching the live, work, play lifestyle of the district. In addition, the development will also create some 15,000 new jobs in the area. The project is expected to be completed in 2028.

Investors in the Asia Pacific (APAC) region are expecting an increase in real estate investment activity in the second half of 2023, according to a survey by CBRE. This pick-up is due to a reduction in uncertainty related to interest rates and an increase in capitalisation rates (cap rates) that have helped narrow the gap between buyers and sellers on prices.

Cap rates measure the value of a property by dividing its annual income by its sale price. An increase was reportedly registered for all property types in the first half of 2023 across APAC cities, except for Japan and mainland China, which remain largely stable.

It is expected that cap rates will rise further, increasing by up to 150 basis points over the next six months. This is being driven by higher borrowing costs and an uncertain economic environment, with increased expansion most notable with regards to core office and retail assets.

As current market conditions are providing more clarity on prices, a narrower price gap is emerging with regards to Grade-A office, retail, institutional-grade modern logistics, hotel and multifamily properties. This is in contrast to traditional logistic spaces, where more buyers are searching for discounted prices, suggesting that current prices may be close to their peak.

Furthermore, reinforcing the expectation for real estate investment growth in the second half of the year, approximately 60% of survey respondents believe that APAC investment activity will resume in the second half of 2023.

Japan is expected to be the first to lead the charge in the third quarter of the year, followed by Mainland China and Hong Kong in the same quarter, and Singapore, India and New Zealand in the fourth quarter.

Private investors are said to hold the strongest buying appetite, while real estate funds and REITs have the intent to sell due to the need to rebalance existing portfolios. Cost and availability of financing remain key considerations for investors in the current market, with rising interest rates and stricter lending standards making an impact.

Henry Chin, global head of investor thought leadership and head of research, Asia Pacific at CBRE, believes that interest rate hikes have significantly increased the cost of financing for commercial real estate in the region. This has led to a bigger funding gap in the coming 18 months, potentially resulting in more motivated sellers in the latter half of 2023, particularly when it comes to Korea logistics, Australia offices and Hong Kong offices.