CBRE’s Head of Research Hints Real Estate Market Recovery Time

• 28 December 2023
• International News
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Investment caution is rippling through the Asia-Pacific real estate market, from Singapore to South Korea, as investors tread carefully amidst concerns over rising interest rates and geopolitical instability. Market data from JLL, a leading commercial real estate and investment management company, reveals a 22% year-on-year decline in commercial real estate investment activity in the Asia-Pacific region for the July to September period. This downturn, representing the lowest quarterly total since 2010, is indicative of the broader challenges faced by the market. This is according to data released by Nikkei Asia on December 15, 2023.

According to MSCI Real Assets, commercial property deals in the Asia-Pacific region plummeted by 37% compared to the third quarter of 2022, marking the sixth consecutive quarter of year-on-year declines. Global investors, grappling with uncertainties, reduced their share of Asia-Pacific acquisitions to near all-time lows of 6%.

Despite the overarching caution, the report identifies pockets of resilience and opportunity in specific markets. However, the prevalent weak risk appetite and subdued expectations for interest rate cuts in the first half of the next year continue to exert pressure on investors in the Asia-Pacific, compelling many to consider offloading assets rather than acquiring them.

The impact is evident in specific countries like South Korea, where Q3 transactions amounted to $4.2 billion, down 35% from the previous year. Singapore, too, experienced an 11% year-on-year decline in commercial property investment volume, reaching $2 billion during the same period. The economic uncertainties weighing on tenant demand and prime office rents are influencing investment decisions.

As the Asia-Pacific real estate market navigates these challenges, stakeholders are closely watching for signals of recovery and potential bright spots amid the persisting uncertainties.

Benjamin Chow, Head of Asia Real Assets Research at MSCI, noted, “The narrative of ‘higher for longer’ interest rates that emerged recently quashed any hopes of an early recovery.” Henry Chin, Head of Research for the Asia-Pacific at CBRE, concurred, stating, “A recovery in investment activity is not expected until mid-2024,” pointing to the prevailing challenges in the market.

The first challenge lies in the fact that investors’ risk tolerance remains low, despite their experience with multiple global crises. Secondly, although there are expectations for government and financial sector policies to lower interest rates, the full implementation of these measures is not anticipated until at least the first half of 2024. This delay will continue to exert pressure on investors in the Asia-Pacific region, leading many to contemplate delisting rather than initiating new orders immediately. Consequently, property and commodity prices are expected to continue declining until the measures take effect. Despite this cautious outlook, a notable feature anticipated in the real estate market from 2024 is its “Market Resilience”.

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