Investment

Trends

Forecast Accuracy

Investors remain in wait-and-see mode as interest rates stay high. Investment appetite has weakened the most among real estate funds but private investors and end-users continue to buy. With investment activity set to remain muted as rates stay high for longer, CBRE has revised down its full-year investment volume forecast to a fall of 15%. Only Japan will experience resilient deal flow, facilitated by positive carry. Offices accounted for 43% of total investment in H1 2023 despite many investors’ concerns about the sector’s outlook. Appetite for logistics has softened, particularly in markets with large new supply.

Mid-year review

The cautious attitude that pervaded among commercial real estate investors in H2 2022 will persist until there is firm evidence that interest rates have peaked, which is likely to emerge in Q2 2023. Purchasing is expected to pick up significantly in the second half of the year.

Forecast made in January 2023

Wait-and-see approach

Forecast Accuracy

Buyers’ firm stance towards pricing has resulted in a limited number of transactions at lower capital values. As of end-June, the cost of finance in most Asia Pacific markets had increased by 300-450 bps during the current interest rate hike cycle, while yield expansion across different sectors ranged between 50-165 bps. However, this will not ensure positive carry trade. There is still time for investors to capture cyclical investment opportunities as yields will continue to expand in H2 2023, with Australia expected to experience the most significant expansion.

Mid-year review

While yields are forecasted to expand further given that interest rates will not peak until mid-2023, the magnitude will be insufficient to ensure a return to positive carry. Overall, CBRE expects that cap rate expansion in Asia Pacific will lie between the range of 75-150 bps.

Forecast made in January 2023

Insufficient yield expansion

Trends

Forecast Accuracy

Investment sentiment will improve once the cost of borrowing starts to come down. In Korea, which was the first market in Asia Pacific to raise interest rates in August 2021, borrowing costs for stabilised assets fell by 200 bps from 7% in January to 5% in June after the Bank of Korea (BoK) indicated that the rate hike cycle is coming to an end.

Mid-year review

With this year marking a turning point in several major cycles including peak interest rates, mainland China’s re-opening, and a return to brick-and-mortar shopping and overseas travel, there will be a brief window of opportunity for investors to acquire assets at attractive prices.

Forecast made in January 2023

Timing will be Key

Trends

Forecast Accuracy