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A look at the Asia Pacific real estate market

The Asia-Pacific real estate market looked at 2022 with optimism. But the first quarter of the year saw weaker leasing activity in some markets and segments. Nonetheless, investment in the region remained strong during the same period.

CBRE has a bright outlook for the APAC real estate market this year. The commercial real estate services and investment firm expected leasing demand to recover, which would end the downward rental cycle in the office and retail segments, and another strong year of growth for the logistics sector.

However, as of CBRE’s data for Q1 2022, weaker leasing activity was seen in the office and retail sectors.

The regional net absorption of the office segment dropped from 15.4 million in the last quarter of 2021 to 11.8 million sq. ft. NFA in Q1 2022, primarly dragged by China’s weaker leasing activity, where net absorption in tier I cities decreased 46% quarter-on-quarter (q-o-q).

Yet, other markets did well in this sector, such as Seoul and India’s major markets. There was also an improved sentiment across the Pacific region over the quarter, as many smaller tenants committed to expansion.

On the supply side, new Grade A supply contracted to 6.4 million sq. ft. NFA, since the start of the year is usually a quiet period for new project delivery, explained CBRE. Meanwhile, regional rents grew 0.3% q-o-q.

The retail sector also saw a slightly weakened leasing volume in Q1 amid the surge of COVID-19 infections and economic uncertainty. The impact of China’s strict pandemic measures made it the weakest performer, while North Asia and India nonetheless maintained a solid leasing activity. 

The sector recorded a limited new supply in Q1, with 1.39 million sq. ft. of stock added, and rents dropped by 1.2% q-o-q.

Meanwhile, logistics kept a healthy leasing momentum in Q1, though pulled back from the peak in the quarter prior as availability of high-quality logistics space became limited, according to CBRE. The firm’s data showed major markets in Asia logging 10.8 million sq. ft. net absorption, a 27% year-on-year (y-o-y) fall yet comparable with pre-pandemic levels. Meanwhile, Australia’s slowdown in new supply hampered leasing activity, seeing a 60% y-o-y decline in gross leasing volume to 5.0 million sq. ft.

New logistics supply in APAC is expected to rise by 23% y-o-y this year. Meanwhile, CBRE Asia Pacific Logistics Rental Index recorded a 2.1% q-o-q increase in Q1.

Q1 leasing activity and sales in the residential market were also challenged, mainly due to the COVID-19 resurgences that suspended free-flowing mobility of people within and between cities and across international borders, according to JLL. 

“Against the backdrop of anticipated pent-up demand release, both sales and leasing markets are expected to see healthy revival,” Roddy Allan, chief research officer – Asia-Pacific at JLL, said in the real estate services firm’s Asia Pacific Residential Digest  1Q 2022. “This should offset the downward pressure from the large influx of supply and potential increase in vacancy rate.”

APAC real estate investment nonetheless remained to be strong in Q1 2022. 

According to CBRE, the region’s commercial real estate investment volume was US$ 31.2 billion, declining 24% q-o-q but a 15% y-o-y growth. 

“Property companies, private equity funds, and REITs (real estate investment trust) were among the major sources of capital this quarter,” the firm noted.

CBRE said transactions slowed considerably in China and Hong Kong on q-o-q basis, amid the disruption due to the pandemic. While Singapore and Australia were the upbeat markets, registering an uptick in investment volume attributed to some big-ticket transactions.

“With the reopening of state and international borders, major Australian cities witnessed a pick-up in demand from both occupiers and investors, and are expecting a significant increase in transaction volumes in the coming quarters,” Colliers echoed in its Q1 2022 APAC market snapshot.

The real estate services firm also recorded that investments in Singapore increased by 34.4% q-o-q to US$7.8 billion.

CBRE saw Australia, Singapore, and Korea as the most popular office markets in APAC. The region’s office investment volume reached US$14.8 billion, comparable to the same period in the previous year.

According to the said Colliers report, the closure of deals in Sydney and Melbourne’s office sector has a combined value of over US$1 billion. While Seoul’s office market transaction volumes reached US$3.6 billion.

Investment volume in the industrial sector was up by only 3.0% y-o-y to US$ 5.4 billion, primarily because of the decline in the number of major portfolio transactions after a dynamic 2021, according to CBRE.

Q1 retail transactions reached US$4.0 billion, a 46% y-o-y increase, supported by border relaxations.

Hotel transactions also increased by 47% q-o-q to US$2.5 billion.

Colliers further showed the strong investments in some APAC markets in Q1.

“In Japan, REITs invested actively in large office and logistics properties while the industrial and hotel segments also attracted significant interest,” the firm said.

“In Thailand too, where investments in the hotel and industrial sectors remained strong, REITs played a significant role acquiring three new assets worth a combined USD185 million.”

The firm also highlighted that India’s Q1 residential sales exceeded pre-pandemic levels.

Colliers also mentioned the Philippines’ easing of travel restrictions has boosted consumer spending and sentiment and encouraged employees’ return to offices. “Together, these factors should anchor recovery in the country’s residential, office, and retail sectors in 2022,” the firm said. — Chelsey Keith P. Ignacio

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