As global economic conditions continue to stabilize, the real estate investment environment in Asia Pacific in 2024 is becoming clearer for investors.
While resilience remains the focus of investors, the pursuit of value is starting to take hold as investors navigate a promising but uncertain market. Even with careful scrutiny, the task is becoming increasingly complex, said Michael O’Brien, managing director of QIC Real Estate.
Successful investors are those who can eliminate distractions, recognize trends, and weigh potential rewards against risks to make thoughtful decisions.
Michael O’Brien
QIC
“As valuations ease and sentiment improves, we are seeing momentum in the capital markets building as investors become more confident about new investment opportunities. While supported by value, investors may begin to shift away from their current valuations.” “O’Brien said. Asian investors.
O’Brien’s views are consistent with a market at an inflection point, where investors are looking for quality and growth potential, particularly in healthcare and housing.
Louise Kavanagh, Nuveen’s Chief Investment Officer and Head of Asia Pacific Real Estate, added some cautious commentary, highlighting the delicate balance within the current market optimism.
Louise Kavanagh
Nuveen
“Even with interest rate cuts, funding costs are expected to remain at decade-high levels, with continued price expectations among buyers and sellers, particularly in structurally attractive sectors with strong competition. “This divergence will continue,” Kavanaugh said. Asian investors.
This uneven investment environment will also reflect many of the macro and geopolitical risks facing the region in 2023. These include a slowing Chinese economy, the persistence of inflation expectations, uncertainty about the central bank’s policy outlook, geopolitical tensions, and uncertainty about capital allocation given falling valuations. Also in other places around the world.
“Overall, we expect an improvement in sentiment and a return to regional real estate investment appetite in 2024, but this is expected to remain modest given the still uncertain backdrop of headwinds. “Delayed increases in funding costs and risk premiums will continue to cause downward valuation adjustments even in fundamentally less attractive sectors,” Kavanagh said.
dangerous environment
The common denominator that investors seem to share is the recognition that success in the new era requires more than just capital, it requires insight, foresight, and the wisdom to read the tides of change. .
james kemp
Macquarie Asset Management
James Kemp, head of Asia Pacific real estate at Macquarie Asset Management, says the big investment risk for investors in 2024 is not understanding the dynamics of different submarkets. This includes focusing on submarket sectors such as lifestyle, logistics, and data centers, which are expected to continue to perform well.
“Macro fundamentals may soften in response to monetary policy, and submarket occupancy rates may decline as many countries have just gone through a reasonable period of increased supply in certain sectors, particularly logistics. There can be significant fluctuations in rental performance, which is close to the national average,” Kemp said. Asian investors.
Emphasizing the importance of a detailed and nuanced approach, Kemp’s concerns also extend to the careful balancing required in conducting monetary policy.
“The big macro risk is that monetary policy is mistimed…too much tightening, resulting in a sharp slowdown in global and regional growth that impacts net operating income on assets and “Cap rate expansion as a proxy for income uncertainty will slow the recovery of trading markets and liquidity,” Kemp said. he said.
ESG and regional risks
Amélie Delaunay, senior director of research and professional standards at ANREV, a regional non-profit focused on private real estate, says environmental, social and governance (ESG) factors are now at the forefront of institutional investors’ attention. is attracting attention.
“ESG factors are emerging as important considerations, supporting the brown-to-green investment thesis,” Delaunay said. asian investors.
Amelie Delaunay
Anref
Climate risks “can impact property values and insurance costs in both the short and long term, further complicating investment decisions,” he added.
From a regional perspective, there are inherent risks to China’s recovery trajectory, with potential implications for the Asia-Pacific economy, says Regina Lim, head of APAC research at M&G Real Estate. That’s what it means.
“China’s economy is currently weighed down by challenges arising from a large and highly indebted real estate sector and slowing domestic consumer spending growth,” Lim said. Asian investors.
Recent policy stimulus measures, such as interest rate cuts, the removal of mortgage caps, and the removal of home purchase restrictions, do not appear to have been sufficient to restore confidence and improve consumer sentiment. A slowdown in the global technology cycle is also impacting exports.
Meanwhile, Japan’s real estate sector may also face unexpected pressures.
“Japan’s interest rates and real estate cap rates may rise more than the market expects. Some real estate investors are pricing in a modest increase in borrowing costs and real estate yields, but the risk is that such adjustments could “It’s the pace and scale that could be more dramatic: inflation and economic conditions,” Mr Lim said.
Life, logistics, debt
In 2024, various sectors in Asia Pacific are likely to offer great opportunities for investors.
Cuong Nguyen, head of Asia-Pacific investment research at PGIM Real Estate, predicted strong growth in the logistics and office sectors, although retail appears to be lagging behind. He emphasized that the cultural shift from owning to renting is drawing demographics towards rental housing.
Cuong Nguyen
PGIM
“From Japan’s mature housing market, to co-living in Hong Kong and Singapore, to Australia’s rapidly growing built-for-sale sector, opportunities remain wide,” Mr Nguyen said. Asian investors.
He said digital transformation is also a game changer, driven by structural growth in digital storage demand across the region and with huge investment potential in data centres.
He further noted that while logistics remains a popular theme, investors are taking a more selective approach and prioritizing core submarkets.
M&G Real Estate’s Mr Lim agreed with the bullish outlook for the lifestyle sector, predicting an opportunity that can be expanded over the coming decades.
“The city’s population is increasing as the government attracts young workers and students to boost the economy,” Mr Lim said.
Regina Lim
M&G Investments
“Tokyo, Osaka, and Fukuoka continue to experience population growth of up to 1% per year, bucking Japan’s overall trend. Additionally, Japan, South Korea, and Australia are seeing fewer marriages, more divorces, and longer life expectancies. We expect the structural trend towards an increase in the number of smaller households to further strengthen.”
Mr Lim said that despite the economic slowdown, the logistics sector remains resilient as structural tailwinds from e-commerce and technology advances continue to reshape consumer behavior and supply chain management. He emphasized that it is maintained.
Market players agreed on the promising prospects for Australia and South Korea. Nguyen took a cautious stance on Japan, with the exception of major retailers, which have been supported by tourism growth.
Lim also pointed out that the cost of real estate debt has ballooned, particularly in Australia and South Korea, pointing to potential non-bank financing opportunities.
“So far, distress has been avoided in the Asia-Pacific market, but it will only be a matter of time before some sellers are forced to refinance in the coming years. Therefore, acquiring assets at attractive entry prices There is an opportunity to do so,” said Lim.
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