“2024 Outlook: Diversification Reshaping Real Estate Investments”

“Expert Predicts Capital Shift Towards ‘Alternative’ Sectors in the Coming Year”

In 2024, significant shifts are anticipated in the Asia Pacific real estate market, driven by investors’ increasing focus on diversification across asset classes.

Christopher Pilgrim, managing director of Colliers Asia Pacific Global Capital Markets, foresees a continuation of the evolving investor behavior witnessed in the past year.

He notes a trend towards greater adaptability in investment strategies, with investors maneuvering across geographic and asset class considerations.

“Geographic diversification will remain a core strategy for investors in the region,” Pilgrim asserts.

Additionally, he observes a notable influx of institutional capital into “alternative” sectors such as multifamily, senior living, and student housing. This strategic repositioning signifies a shift towards more lucrative investment avenues.

In addition to alternative assets, there is a growing interest among real estate investors in thematic investments on a global scale.

Pilgrim highlights that investors are increasingly drawn to narratives aligning with overarching themes, leading to a strategic approach extending beyond traditional market boundaries.

Moreover, the focus on Environmental, Social, and Governance (ESG)-compliant assets is expected to persist into 2024.

Investors increasingly recognize the value that these assets bring, contributing to rental growth particularly in sectors such as industrial real estate, according to Catherine Chen, director for Asia Pacific Research at Cushman & Wakefield.

The trend towards sustainability and climate consciousness is also shaping the office and logistics sectors. Christine Li, head of Research at Knight Frank Asia Pacific, notes a flight-to-quality trend in these sectors.

Stakeholders are increasingly committed to addressing sustainability and climate change concerns, reflecting a broader industry shift towards responsible practices and environmentally friendly developments.

“Anticipating an Upturn: Market Expectations for the Coming Year”

The upcoming year is poised to bring significant transformations to the property market, with expectations of heightened transaction volumes fueled by the stabilization of interest rates.

Interest rate fluctuations have posed substantial challenges for investors and developers, particularly impacting regions like Hong Kong, Australia, and South Korea, according to insights from Chen.

Christopher Pilgrim reflects on the volatility experienced in 2023 due to global interest rate rises and inflation, which proved challenging for both debt and equity investors across real estate asset classes.

“The anticipated stabilization of interest rates will inject confidence into the debt markets, sparking increased lending and borrowing activities,” Pilgrim notes.

Christine Li concurs, foreseeing 2024 as a turning point for real estate investment markets in the Asia Pacific (APAC) region.

“The likelihood of a soft landing, which the Fed has been striving for in its economy, is improving. As the Fed pauses its extended rate hike cycle, interest rates are expected to peak, narrowing bid-ask spreads and stimulating investment activity,” Li explains.

Li also emphasizes the role of the Asia Pacific region as a primary engine of global economic growth. With China’s recovery gaining momentum, these favorable conditions are expected to bolster the region’s real estate sectors.

In summary, the stabilization of interest rates is anticipated to restore confidence in the property market, facilitating increased lending and investment activity, particularly in the resilient Asia Pacific region.

“Office Sector Dominates: Trends in APAC Real Estate Investment”

Office spaces emerged as the dominant asset class for investment in the Asia Pacific (APAC) region, comprising 38% of transactions in the first half of 2023, according to data from Cushman and Wakefield.

Christine Li notes that APAC’s office demand remained robust compared to the United States and Europe, buoyed by a stronger return-to-office trend in the region. Li observes that while tech occupiers are rationalizing employee headcount, financial and professional services firms, along with flexible space operators, have filled the gap in leasing activity.

However, Knight Frank’s data indicates a decline in office rents across the APAC region, registering a 1.8% decrease in the first half of 2023. Martin Wong attributes this sluggish performance to abundant supply and investor hesitancy amidst the high interest rate environment.

Li concurs, citing rising funding costs and concerns about economic slowdown as factors driving investor caution. She notes a trend towards selectivity among buyers and landlords in response to structural challenges posed by hybrid working models and a flight-to-quality trend among tenants.

“In response to these challenges, office landlords are adapting, focusing on the quality of their spaces rather than simply the quantity,” Li adds, emphasizing the evolving priorities of tenants in the current market landscape.

“Rising Investment Focus: Industrial Sector Gains Traction in APAC”

Following the office sector, the industrial segment emerged as the second-largest investment sector in the Asia Pacific (APAC) region.

Christopher Pilgrim notes a sustained increase in capital allocation towards logistics assets in APAC, reflecting a growing focus on this sector.

Catherine Chen highlights a notable rise in industrial investment share, increasing from a 10-year average of 17% (2013 to 2022) to 22% in the first half of 2023. Chen attributes this growth to the region’s status as a major logistics hub, with increasing demand for modern, high-quality logistics facilities driven by a rising middle class.

Additionally, Christine Li identifies e-commerce and third-party logistics (3PL) players, along with manufacturers, as key drivers of the industrial market. While e-commerce demand normalizes, Li notes a continued need for modern facilities to optimize logistics operations. Institutional-grade facilities in core areas and last-mile locations remain in high demand, fueling leasing activity in the region. Li also highlights the China+1 strategy, driving expansions by major manufacturers into Southeast Asia.

Chen concurs, emphasizing that the China+1 strategy has spurred interest in manufacturing and logistics assets across Southeast Asia.

“Retail Sector’s Continuing Relevance”

In contrast to the industrial segment, the retail sector emerged as the top performer in Singapore in terms of investment.

Catherine Chen notes that retail investment constituted over half of the total transaction volume in Singapore in the first half of 2023.

“This surge was primarily driven by several significant deals initiated by Frasers and Link REIT,” Chen elaborates.

Christopher Pilgrim highlights the retail sector’s remarkable resilience and strength across the Asia Pacific (APAC) region compared to other sectors.

“The retail sector has shown consistent performance, maintaining stabilized yields for 12 consecutive months,” Pilgrim remarks, underscoring its enduring appeal to investors.

“Residential Sector Finds Relief”

In addition to retail, the residential sector, particularly in Hong Kong and Australia, is attracting investor interest.

Christopher Pilgrim notes a rise in investment in the apartment subsector in both Hong Kong and Australia. Apartments accounted for 16% and 14% of total investment in the respective markets during the first half of 2023.

Residential sales are also showing resilience in Hong Kong, with developers adopting more aggressive strategies to clear their inventory, according to insights from Knight Frank’s Wong.

Wong further observes that many developers in the region are aiming to address lingering inventory from the past two to three years.

Meanwhile, on the buyer side, Christine Li highlights that buyers are capitalizing on the pause in interest rate hikes.

“Buyers are seizing this opportunity to secure their dream homes,” Li remarks, emphasizing the current favorable market conditions for prospective homebuyers.

Greg Swanson
Greg Swanson
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