Savills Prospects May 2023: Australian Industrial Power, China REITs, and APAC Risk
Savills Prospects takes a look at the real estate landscape and examines the emerging trends set to impact property and investors in Asia Pacific.
With Q3/2023 coming up fast, real estate investors in Asia Pacific might be better positioned than their peers around the globe thanks to the region’s strong emerging markets and favourable demographics, but that doesn’t mean they are immune to outside forces and free of risk entirely. Savills Prospects investigates some of the factors poised to have the greatest influence on real estate across APAC in the immediate term.
Rocketing Rents Rescue Australian Industrial
Like sectors and markets worldwide, Australian industrial real estate has been negatively impacted by rising rates. Strong occupier demand, however, has supported the sector in recent months. Additionally, investors see industrial as a strong long-term asset. While inflation and rates have led to yields rising to 4.8% on the east coast, solid rental growth has counteracted falling values. Constrained future supply, e-commerce growth and nearshoring are all factors that will combat economic headwinds this year.
Even though Chinese tourists have yet to start travelling significantly, the end of COVID restrictions has jumpstarted APAC’s retail recovery. A degree of normalcy has led to increased sales and boosted retail rents in gateway cities. The recovery in confidence has been paired with rental increases in Q1, such as in Hong Kong, where restrictions were in place until early in 2023. Despite the positivity, retail faces several challenges in the immediate term, and must continue innovating to retain consumers.
Retail REITs Clear New Path for China Developers
The National Development and Reform Commission and China Securities Regulatory Commission unveiled new policies for Chinese real estate investment trusts (C-REIT) in March. With C-REITs now able to include shopping centres and department stores, investors have a new fundraising avenue. Though C-REITs present a viable way for debt-sensitive investors to monetise assets, challenges remain. Retail oversupply and rising e-commerce penetration pose significant hurdles, forcing asset managers to work harder to attract consumers.
Investors Must Contend with Risk on Three Fronts
The decade of post-GFC growth is a thing of the past. At the time, cheap debt and solid returns made real estate an attractive, low-risk investment. Today’s geopolitical environment, shifting consumer and labour habits, ESG demands and other factors, however have increased risk. APAC real estate investors are facing three. The first is structural risk, represented by the digitalisation of work and life. The second is cyclical risk, marked by the inflationary period the world is in. The third is market risk, in 2023 dominated by property oversupply. Investors must engage with these risks if they are to be successful in the current climate.
Authors : Simon Smith
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