Global real estate market stabilisation to take hold in a return to relative rationality

Leading diversified professional services and investment management company Colliers (NASDAQ and TSX: CIGI) has released its 2023 Global Investor Outlook report, which has found that the stabilisation of global real estate market will take hold by mid-2023. Despite the volatility of geopolitical tensions, economic shocks and uneven monetary policy over the past year, countries including the UK and the U.S. have already witnessed a rapid pricing reset however, this has not been universal. Investors can therefore expect significant differences in how the reset plays out across sectors and markets in 2023.

Asia Pacific investors to raise exposure despite challenges

Globally, Asia Pacific is the region most optimistic about economic growth. Over half of Asia Pacific investors (53%) expect positive impact as a result of economic growth within its own region, versus 41% in EMEA and 38% in the Americas. Similarly, 43% of Asia Pacific respondents expect positive impact as a result of global economic growth, above EMEA (38%) and the Americas (28%).

Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers India, added, “Emerging economies in Asia Pacific Markets likely to be resilient in 2023 compared to other markets. Markets like India are now seen more depth in Real Estate Investments with wider base of Investors, strong performance of Equity Capital Markets including REITs, listed equities, capital inflows across value chain of Development of Office and Residential Development. With geo political scenario emerging in Asia supported by consistent Government policy framework the Industrial, logistics, Data Centers sectors in India are likely to see tremendous growth. With global funds partnering with Indian developers, there is ample dry powder to be invested in the market in next five years. This year is likely to see investment of about USD 4.5 billion in the market, higher than 2021”.

Rising costs and challenges ahead

Current inflation and interest rates are fueling an increase in operational and construction costs already exacerbated by supply chain issues and energy price increases. Asia Pacific investors cited interest rates (88%), increased construction costs (87%), and higher asset operation costs (77%) as the top challenges for the year ahead that will have the most negative impact on investors’ ability to pursue investment strategies. Globally, interest rates were also the top concern (88%), followed by inflation (74%) and supply chain disruption (68%).

Core assets prevail

Market volatility has led investors to focus on fundamentals and defensive strategies. Across the board, Asia Pacific investors’ top three sector preferences for 2023 are offices (68%), industrial & logistics (I&L) (65%), and multifamily/build-to-rent (42%) – the same top three for investors worldwide. While core assets in established, larger cities are investors’ preference in Asia Pacific (74%), sectors closely connected to changing demographic and economic realities such as multifamily and senior housing are driving activity in smaller, growth cities. There is also rising interest in retail with 52% of Asia Pacific respondents intend to invest in suburban malls (the highest globally), and 48% in CBD/high street retail.

Liquidity and sustainability driving opportunities

Environmental, social, and governance (ESG) criteria continues to be a key factor in investor decision making across Asia Pacific. This is driven by a flight to quality primarily in major office markets, as well as the need to respond to occupier demands and to balance out long-term asset operational costs.

In Asia Pacific, two-thirds (66%) of investors have either already activated or are currently integrating action on the environmental performance of their assets (e.g. a capital improvement, disposal or acquisition strategy that incorporates ESG considerations), compared to 75% of investors globally. 40% of Asia Pacific investors are also looking to dispose up to 50% of their existing portfolio in the next five years as it no longer fits with their ESG investment strategy, compared to 53% of investors globally.