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Chin: Investors are coming [to Apac] to look for deals across all asset classes (Picture: Samuel Isaac Chua/The Edge Singapore)
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SINGAPORE (EDGEPROP) - When Henry Chin, CBRE’s global head of investor thought leadership and Asia Pacific head of research, sat down with EdgeProp Singapore, he was nearing the end of a seven-week work trip across the US, Australia and Singapore — his first extended international tour since the pandemic began.
While on his trip, Chin — who is based in Taipei — saw a glaring difference between the US and Asia Pacific (Apac). While visiting offices across the US, he encountered many workspaces that were still underutilised. In contrast, most people are back to work at their offices in Hong Kong, Sydney and Singapore.
For Chin, it was evident that Apac is at the forefront of the return-to-office wave. “We think the future demand for Apac offices is going to go up,” he says. The data supports his prediction: a survey of occupiers by CBRE in May showed that Apac occupiers were the most bullish, with 47% expecting to increase their office space over the next three years and only 23% expecting to decrease their footprint. In comparison, both the US and Emea (Europe, Middle East and Africa) regions showed mixed sentiments with a near 50:50 split between those wanting to increase or decrease office space.
office real estate portfolio - EDGEPROP SINGAPORE
Source: CBRE
This bullish outlook continues to support big-ticket capital transactions in the Apac office market. US private equity firm KKR completed its acquisition of Twenty Anson in Tanjong Pagar for a reported $598 million in April. In June, AEW acquired Westgate Tower, a Grade-A office building in Singapore’s Jurong East, for $680 million. Earlier the same month saw Capitaland Investment acquire an office building located in the Melbourne CBD for A$320 million ($317 million). Singapore-listed developer SLB Development acquired a pair of commercial shophouses at North Canal Road for $14.38 million, and a 12-storey commercial building at King Street in Melbourne CBD, Australia, for A$35.5 million.
AEW acquired Westgate Tower, a Grade-A office building in Singapore’s Jurong East, for $680 million in June (Picture: Samuel Isaac Chua/The Edge Singapore)

Record year ahead despite headwinds

Office deals continue to make up the largest proportion of real estate transaction volume in Apac. In 1Q2022, of the US$31.2 billion ($43.2 billion) in real estate transactions, the office sector made up nearly half at US$14.8 billion. Nonetheless, overall investment momentum in Apac is going strong amid improving sentiment. “Investors are coming here to look for deals across all asset classes,” Chin observes.
Activity in the region is expected to underpin up to US$150 billion in total real-estate transaction volume for 2022 — a growth of 5% y-o-y and a new full-year record if achieved, according to CBRE. The strong investment outlook comes even as concerns over interest rate hikes have spilled over from the US, while ongoing supply chain disruptions continue to fuel inflation risk. Across Apac, countries including Singapore, China, Australia and Japan are expected to see elevated inflation over the next year.
This, combined with uncertainties such as China’s pandemic-led disruptions, has had a knock-on effect on growth expectations. In April, the International Monetary Fund cut its growth outlook for Asia this year by 0.5 percentage point to 4.9%.
With lower growth and higher inflation expected over the coming quarters, Chin thinks a recession may be likely in some parts of the world. However, he doesn’t think a recession is on the cards for the Apac region. “In Apac, we’re more likely to have below-trend growth, but not a recession,” he states.
One reason for this view is the fact that economic powerhouses like China and Japan still employ accommodative monetary policies. In January, the People’s Bank of China cut interest rates on one-year medium-term lending facility loans to help boost the economy. Another cut followed in May, this time for the five-year loan prime rate, which is a benchmark rate for mortgages. Meanwhile, Japan also continues to buck global trends, maintaining its ultra-low interest rates.
Another positive indicator is the resurgence of consumer-driven industries like F&B and retail, supported by pent-up travel demand and tourist spending. According to a report by the Pacific Asia Travel Association, international visitor arrivals to Asia are expected to grow by 100% between 2022 and 2023.

Investors more cautious

While the broad-based recovery across Apac continues to lure investors, Chin concedes that given the current economic uncertainties, investors are becoming more risk-averse. A survey by CBRE in April found that investors had a lower risk appetite in 1Q2022 compared to the previous quarter, with the majority citing concerns relating to interest rate hikes, and higher inflation, among others.
major challenges - EDGEPROP SINGAPORE
Source: CBRE
Cap rates are another factor being closely monitored. A June report by Moody’s Analytics indicated that cap rates across all property segments in the US could see a “moderate bump” in the near term owing to interest rate hikes. Chin views that a similar trend could potentially happen in Apac, especially in countries where central banks have started raising interest rates, such as New Zealand, South Korea and Australia.
He views that cap rate decompression is likely to be observed in Apac in the second half of this year, though at a smaller magnitude compared to the US. “The momentum [of cap rate decompression] in our region is happening but is a lot less aggressive than what we’re seeing in the US because our rate hikes are not as severe,” he explains.
Source: CBRE

Offices and logistics still popular

To be sure, office and logistic assets, underpinned by strong fundamentals, will remain popular among investors.
For offices, Chin notes that beyond the fundamentals, investors continue to like the sector given its liquidity and transparency. Another reason has to do with the global flight-to-quality trend. “A lot of Apac office supply is quite new, whereas a lot of the US office supply is made up of older stock,” he explains. The newer stock, besides offering better quality spaces for occupiers, also makes it easier for landlords and investors to refurbish existing buildings to meet the growing demand for Grade-A space.
Singapore’s CBD skyline - EDGEPROP SINGAPORE
Singapore’s CBD skyline. Office deals continue to make up the largest proportion of real estate transaction volume in Apac (Picture: Samuel Isaac Chua/The Edge Singapore)
While investors have favoured markets with strong fundamentals like positive rental growth and tight supply, such as Singapore and South Korea, Chin also advises investors to look at other markets that are primed for recovery. These include cities in mainland China such as Beijing and Shanghai, as well as major cities in Australia, where rents are set to turn positive within the next year.
Meanwhile, persisting global supply-chain disruptions are expected to continue fuelling demand for logistics and industrial assets. A 2021 survey by CBRE found that 78% of logistics occupiers intend to expand their space over the next three years, with a particular preference for build-to-suit facilities.

Emerging multi-family markets

Within the Apac multi-family housing landscape, Japan continues to dominate, supported by a mature and liquid market. In March, real estate investor M&G Real Estate purchased 30 residential properties in Japan from alternative asset manager Blackstone for JPY49.2 billion ($504 million). Allianz Real Estate, which had set up a US$2 billion Japan multifamily residential fund backed by Quebec pension fund manager Ivanhoé Cambridge last December, acquired a portfolio of 12 multi-family residential assets in Tokyo for US$90 million in March.
However, investors are also starting to look to other markets, encouraged by increasing urbanisation and declining housing affordability across the region. Australia and China have emerged as attractive multi-family destinations.
In Australia, the market remains concentrated in higher-density cities like Sydney and Melbourne, with investors partnering local developers. For example, in April, M&G Real Estate Asia announced it was venturing into Australia’s multi-family sector through a A$450 million partnership with local developer Novus.
Meanwhile, China’s multi-family market has strong growth potential, thanks to its rapidly increasing renter population. According to data cited in a report by CBRE last September, mainland China’s total renter population reached 220 million in 2020 and is expected to expand further to 240 million by the end of 2022.
Elsewhere, in places like Hong Kong and Singapore, demand for rental accommodation has boosted acquisitions of hotels by investors looking to convert the buildings into co-living spaces. In early June, PGIM Real Estate and Weave Living announced a US$200 million joint venture to explore opportunities within the rental accommodation sector in the region. In March, a joint venture between Weave Living and SLB Development bought a row of shophouses that had been previously operated as Hotel Clover on Jalan Sultan for $74.8 million.

The challenge of data centres

Apac data centres saw a record US$4.8 billion worth of investments in 2021, more than double the US$2.2 billion recorded in 2020. While appetite for data centres remains strong, backed by the growing demand for bandwidth capacity, Chin highlights that the market is not an easy one for investors to crack. “The thing about data centres is that they’re not a pure real estate play,” he says.
Instead, he views data centres as more of an operational asset that calls for specialised expertise. Data centres have added complexities such as getting operational rights and government approvals, securing power and other logistical requirements, as well as maintaining quality of service. Because of these execution risks, many growing data-centre markets, such as China, South Korea and Indonesia, remain dominated by local players. “Only two markets make sense for international investors — Japan and Australia,” says Chin.
In addition, a growing number of investors are choosing to set up their own dedicated platforms. Stack Infrastructure, a data-centre company backed by investment firm IPI Partners, announced its expansion into Apac last October via the development of a 36MW pipeline in Tokyo. More recently, Singapore’s SC Capital Partners launched its data-centre platform, SC Zeus Data Centres, in February with plans for a US$500 million hyperscale facility in Seoul.

Hotel and retail opportunities

The retail and hotel markets have had a bumpy ride to recovery, as the Omicron variant impacted sentiment in the first half of the year. Nonetheless, retail transactions clocked in at US$4 billion in 1Q2022, up 46% y-o-y. Similarly, hotel transactions saw a 47% y-o-y boost to US$2.5 billion.
With a growing number of Apac countries starting to ease travel restrictions, hotels and retail assets are primed to benefit from pent-up travel demand that will be unleashed when borders fully reopen.
Shoppers in the Harajuku district of Tokyo - EDGEPROP SINGAPORE
Shoppers in the Harajuku district of Tokyo. Core and secondary retail assets in popular Apac tourist destinations are expected to rebound as travel resumes (Picture: Bloomberg)
Chin is particularly bullish on core retail assets in major cities, pointing out that the current weaker fundamentals are supporting a flight-to-quality trend, much like in the office sector. “Retailers realise that they can ask for cheaper rent in better-quality buildings in the CBD, where consumers are,” he explains. To that end, prime, well-located shopping malls in markets such as Singapore, Sydney, Melbourne, Hong Kong, Seoul, Tokyo and Osaka are expected to benefit as border restrictions ease further and travel resumes. Chin foresees secondary retail locations benefitting too, especially in popular tourist destinations such as Tokyo and Osaka.
With mainland China and Hong Kong’s travel borders yet to reopen, Singapore has been a prime beneficiary — in travel, employment opportunities and investments. “I think once Hong Kong reopens, people who are based in Singapore temporarily could move back to Hong Kong,” says Chin. “While the current sentiment is leaning towards moving to Singapore, housing prices are at rates unseen in decades, with rental rates growing at 30% to 50%. That’s why we’re closely watching to see what the Singapore government does — it tends to intervene with things like rental and price growth.”
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