Asian commercial property will continue to roar in the Year of the Tiger

FOR many markets across Asia, the Year of the Tiger is set to see a few speed bumps throughout the course of 2022. Intense competition pushing up capital values in a market flush with liquidity and the possibility of another Covid-19 variant emerging are some of the many risks facing investors.

But as the Chinese saying goes, "you can't catch a tiger if you don't venture into its den" - investors are recognising opportunities in Asian commercial real estate amid the unpredictability. The sector looks set to usher in a banner year for investment as many governments make the shift to live with an endemic state of Covid-19, and property investors prepare to invest more capital in the sector.

Still keen on commercial property

According to CBRE's Asia Pacific Investor Intentions Survey 2022, sentiment towards Asia-Pacific commercial real estate remains positive, with around 60 per cent of investors planning to purchase more real estate this year, compared to 2021.

The upbeat overall mood has led CBRE to forecast that total investment turnover will increase by 5 to 10 per cent, to around US$150 billion in 2022. Should this total be achieved, it will be a historical high for annual commercial real estate transaction volume in the Asia-Pacific region.

The 535 survey respondents, who range from institutional to private investors, said they are seeking value-added opportunities, which involves upgrading or redeveloping existing properties in good locations to meet future ESG (environmental, social and governance) standards, as well as re-positioning underutilised facilities to cater to faster-growing markets.

Tokyo, Shanghai and Singapore are the most favoured cities for cross-border investments, while logistics and offices topped the list of preferred sub-sectors.

Asia-Pacific commercial real estate volumes rose by 30 per cent to US$140 billion in 2021, validating the results of CBRE's previous Asia Pacific Investor Intentions Survey, which also showed that a majority of investors intended to purchase more real estate.

Where demand is coming from

While higher interest rates will crimp demand for real estate in some quarters, this is offset by the scarcity of assets such as modern logistics facilities and Grade A office spaces in Asia-Pacific. Indeed, property has historically been one of the best hedges in times of rising inflation.

Strong investment activity from close-ended real estate funds, real estate investment trusts and institutional investors - including many that paused acquisitions at the onset of the Covid-19 pandemic in 2020 - are expected to drive the recovery in demand. CBRE estimates that institutions in the region have up to US$500 billion in equity on their balance sheets awaiting deployment.

International investors are keen to increase their exposure to Asian real estate to capture the region's growth and diversify their portfolio. Within the region, investors from Singapore, Australia and South Korea are the ones most keen on outward investments.

As for China, there continues to be strong demand for commercial property especially among insurers, even as investors have become increasingly concerned about residential developers.

Logistics, office sectors lead the way

CBRE found that while logistic assets remain the most popular sub-sector for property investors, interest has softened from the 2021 survey due to rising capital values. Moreover, Asia-Pacific logistics rents have risen by 33 per cent since 2010, limiting the potential for further increases in the next few years.

In contrast, the appetite for offices has strengthened over the past year, with "flight-to-quality" relocations and demand for space in newer, greener buildings expected to help the region's office market recover from its longest downward rental cycle in 20 years.

Many offices in Asia-Pacific have reopened or are in the process of welcoming returning employees. While the Omicron variant has slowed the reopening process, it is unlikely to derail the recovery of office demand as companies gain more confidence about returning to the office.

Initial reactions from North Asian companies indicate that most will continue working at the office, albeit with limits on occupancy or team rotation.

For the whole of 2022, CBRE expects Grade A office rents to increase by around 1 per cent on average, led by Singapore where rents are likely to rise by more than 10 per cent.

Charging ahead

In Chinese astrology, the tiger is one of the animals most closely associated with "yang" or strong, positive energies.

CBRE expects the region's economic recovery to reflect this positivity and gather pace in the coming months, rewarding investors who are upbeat on Asian commercial real estate.

The writer is global head of investor thought leadership and head of research, Asia-Pacific, at CBRE.