IS THE MARKET attractive for INVESTMENT?
Return to Normal?
Asia Pacific enters 2022 with strong underlying momentum but greater than expected short-term headwind from the spread of Omicron. In Q2 however, that momentum will assert itself, building upon the regions re-emergence from prolonged lockdowns. The regional economy regains top spot in terms of pace of growth in the second half of 2022, which is maintained into 2023. In consequence, occupier markets are forecast to strengthen in the year ahead, with demand more widely spread across the region.
Uncertainty will remain high due to the virus, inflation and events in Ukraine, but most indicators point to a steady improvement in confidence at a social and business level globally as 2022 progresses. This will lead to a rising cycle of performance for most markets, despite differing structural headwinds.
A slow pace of vaccination uptake in some countries in the past year did not stop the economic bounce back in the region but overall, the pandemic has led to an unprecedented contraction in retail and office markets while confirming the strength of industrial and logistics real estate.
Countries across the region are now making progress with vaccination plans and this is helping a progressive return-to-work, typically with a hybrid 50:50 scheme. The economic impact of this is also clearer in most countries, with a slow improvement forecast, notably later in 2022, but also a worrying build up in inflation.
Despite a slower start to the year thanks to COVID-19 as well as speed limits on growth due to resource and staff shortages and uncertainty over inflation and Ukraine, market drivers look set to be more positive as the year progresses. This will continue into 2023, aided by an improvement in supply lines and an easing in inflationary pressures.
The economic recovery extends in 2022, with COVID-19 becoming a diminishing force in social and economic terms, even as fiscal and monetary stimulus are removed. Multifamily and industrial leasing and capital market fundamentals lead, but will be increasingly supported by the office and retail sectors. The balance between these begins to normalize in 2023.
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Sheds, beds, meds and niche assets will see a further increase in allocations—growing from a position of immaturity in some regions—while more traditional sectors offer a key route to access stock due to scale. However, investors must approach all sectors via a range of structures and capital routes to find opportunities and take advantage of all performance potential.
Remains a pandemic winner in all geographies with very robust occupier demand and build-cost inflation set to boost rental growth. With capital values high, investors will need to be selective in targeting assets able to sustain this growth over the medium term.
Performance Outlook 2022
Performance Outlook 2021
Sectors Scored from -2 (Strong Underperform) to +2 (Strong Outperform)
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Retail - experiential
Retail - Convenience
& Student Housing
The appeal of sectors driven by demographic and social needs is spreading. Demand and pricing have proved resilient through the pandemic and with modern purpose-built space in demand for residents, students and seniors, the scope of the sector will grow substantially further, globally.
Business travel may be held back by the latest twists of the pandemic, but the fundamentals of the sector look strong for leisure travel. It will steadily pick up as travel restrictions continue to ease, but with new formats and business models.
Led by mature markets, less traditional sectors merit stronger investment where fueled by robust demand drivers and operational gains. Sectors such as life science, self storage, healthcare and technology infrastructure can make a telling contribution to portfolio performance, with a shortage of supply a key driver and entry point.
New office working models are developing as we transition from WFH. While more discerning and more deliberate about sustainability, occupier demand is up and the sector is entering recovery mode.
Challenges remain, but retail is turning a corner and the role of physical space in delivering convenience and anchoring destinations is if anything clearer than pre-pandemic.
The market will be polarized in recovery, but repricing is now opening opportunities.