2024 Winter Issue of Urban Land - 86

Emerging Trends:
Asia Pacific
Global capital moves to the
sidelines as regional buyers
remain active
HigHer interest rates are creating seismic
ripples that are being felt throughout Asia Pacific's
real estate markets.
The Emerging Trends in Real Estate Asia Pacific
2024 report highlights both challenges and
opportunities ahead in the new rate environment.
The top three concerns for survey respondents are
interest rates, low yields, and cost/availability of
financing. Although higher capital costs are expected
to drive a reset on property valuations globally, Asia
Pacific real estate has proved resistant to change.
As of the third quarter 2023, real estate assets had
experienced only marginal cap rate expansion, with
prices weakening a slight 10-15 percent across most
regional markets.
A bid-ask spread has emerged in most markets,
with the widest in Australia and Hong Kong and
the narrowest in Singapore and South Korea. Many
PROSPECTS FOR NICHE PROPERTY TYPES
global investors have moved to the sidelines in the
new rate environment due to pricing uncertainty,
higher capital costs, and a need to reevaluate
investing strategies.
As one fund manager, interviewed for the report,
says: " I feel we're going to be stuck in the mud
for another year, because I don't see a catalyst
for change. People are going to be head down,
focused on managing their assets to the best of
their abilities. " The major exception is Japan, where
interest rates remain at rock-bottom rates, around 80
basis points. For many foreign fund managers, Japan
is currently the only destination in the Asia Pacific
where they are willing to deploy capital.
Given the current backdrop, it comes as no
surprise that overall investment activity in the region
is down sharply. As of the third quarter, year-overyear
sales were down 64 percent, according to the
report. On a positive note, intra-Asian buying has
held up relatively well, with deal flow that was flat on
a year-over-year basis. One reason for the stability
of regional cross-border transaction has been the
resilience of regional economies; another contributing
factor has been a surge in Japanese capital flowing
in search of higher returns.
In another surprise to the upside, survey
respondents have a positive view on profit
projections, with levels that are above both 2021 and
the global financial crisis in 2009. This sentiment
may reflect the fact that both industry and economic
fundamentals are not as weak as they could be.
Top trends
Source: Emerging Trends in Real Estate Asia Pacific survey.
86
URBAN LAND WINTER 202 4
Shift in strategies. Traditional asset classes-large,
core, office, and retail assets-have fallen from favor.
Office, in particular, has been affected by a bidask
standoff on pricing, as well as greater caution
among global investors that have seen weak office
use in the West, compared to pre-pandemic levels.
Instead, investors are pivoting to niche sectors that
feature attractive risk-adjusted returns, underlying
demand drivers, and long-term growth potential. The
most popular alternatives include ones in the " beds "
category-multifamily, student housing, senior living,
hotels-as well as logistics, data centers, and life
science assets.
Refinance risk. One of the regional nuances
contributing to the slow pricing reset is that banks
tend to dominate commercial real estate lending.
Asia Pacific banks take a more relationship-driven
approach to commercial real estate financing, and
they have historically been more accommodating
on valuation issues. However, the persistence of
traditional practices is not guaranteed. A potential
risk ahead is the prospect of a " refinancing wall, "
2024 Winter Issue of Urban Land

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