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Asia Pacific Real Estate Market Outlook 2020

Hear from our experts



The Asia Pacific real estate investment market will continue to enjoy ample liquidity in 2020. Purchasing activity will be led by regional focused close-ended real estate funds, which possess an estimated US$51 billion of capital to be deployed over the next two to three years. Open-ended core funds will be active amid rising demand from investors seeking long-term diversification and stabilised income returns. CBRE estimates Asia Pacific focused open-ended funds currently possess around US$33 billion (included leveraging) to be invested in the region.

Low returns from fixed income investments will encourage Asia Pacific institutional buyers to diversify their portfolios by increasing their allocations to real estate. Should these investors expand their real estate allocations by 50 bps, an additional US$85 billion would be available to invest in Asia Pacific real estate. Around 60% of this capital would originate from Australia, Japan and Korea.



REITs will comprise another strong source of demand in 2020 as many groups – particularly those listed in Australia, Japan and Hong Kong SAR - have room to expand their leverage ratio. Should Asia Pacific REITs expand their current gearing ratio to its maximum level (35% to 50%)6, an additional US$70 billion would be available to invest in Asia Pacific real estate.

The above estimation covers Asia Pacific focused real estate funds and Asia Pacific based institutional investors and REITs. When global institutional investors, high net worth private individuals and developers are also taken into account, the liquidity pool is even larger. However, the low cost of borrowing means vendors will be under less pressure to lower prices in 2020, ensuring the price gap remains significant. Many investors also are expected to turn more selective towards purchasing due to weaker rental outlook. These factors are set to prevent a strong rebound in investment activity in 2020, ensuring transaction volume remains largely unchanged.



6Assuming a gearing ratio cap for Japan, Malaysia, Korea (50%); Hong Kong SAR (45%); Australia, New Zealand (40%); Singapore, Thailand, Taiwan (35%)




The downward interest rate cycle ensured the yield spread over the policy interest rate expanded by over 100 bps last year. Low inflationary pressure will create room for additional interest rate cuts to prop up regional economies. As such, CBRE expects yield spread to mildly expand in 2020.

The low interest rate environment, ample liquidity and shrinking pool of assets for sale will ensure yields stay low for longer. Markets including Australia, New Zealand and Japan, which continue to offer an attractive yield spread against the cost of borrowing, are likely to see further yield compression driven by strong capital flows. Elsewhere, office yields in Shanghai and Hong Kong SAR have begun to decompress as their occupier markets weaken, with expansionary pressure set to continue in 2020.

Investor enthusiasm for logistics assets will drive further logistics yield compression across the region in 2020. In the retail sector, relatively higher requirements for more active asset management will continue to compel investors to seek higher yields.

With rents in the late stage of the cycle and yields standing at record lows, CBRE expects Asia Pacific weighted average Grade A office capital value growth to weaken in 2020.


Source: Capital IQ, Oxford Economics, CBRE Research, January 2020.





CBRE forecasts weighted average gross annualised total returns for all sectors across major Asia Pacific markets to fall to an aggregate of 3.4% in the coming three years (2020-2022) from 8.2% (2017-2019). Investors should therefore determine whether now is an opportune moment to realise gains on their earlier investments.

In the office sector, Perth and Brisbane are expected to provide relatively higher returns resulting from stronger net effective rental growth. Selected markets such as Seoul, Beijing and Singapore are expected to see total returns stabilise.

Logistics returns are likely to outperform those in the office and retail sectors. However, CBRE believes investors should reconsider their investment strategy towards logistics, with built-to-suit developments expected to gain favour as logistics occupier focus on improving efficiency. Older assets in secondary locations will be challenging to attract tenants as occupiers opt for specialised logistics facilities best suited to their operational requirements.

Investors are also advised to consider emerging logistics hubs such as Vietnam, Indonesia and India, all of which are set to benefit from supply chain relocation out of China in the coming years. Forming joint ventures with local partners or acquiring industrial sites for development will remain the main entry route in these markets due to foreign ownership restrictions and the lack of investable assets.

Although conditions in the retail sector are set to remain challenging, performance and fundamentals will vary across markets. Community shopping malls in China tier I cities and Singapore will provide stable returns but high street retail in Hong Kong SAR remains vulnerable to softening leasing demand.


All sectors annualised gross total return is the weighted average of total return for the office, retail and logistics sectors.




CBRE data show that the next wave of fund expiration will commence in 2020 and peak in 2021-2022, involving around 39 funds with a gross asset value (GAV) of about US$30 billion.

A review of assets available for disposal by funds approaching the end of their fund life between 2021 and 2022 shows that around 80% are in China, Japan and Australia. These assets mainly comprises office properties but some industrial facilities will also be made available for sale as there are several single country focused industrial funds entering the termination phase.



At the same time, many Chinese developers will be disposing of commercial assets at flexible prices as they seek to lower their gearing ratio. These factors could improve the availability of stock.

As gross total returns moderate, investors should be vigilant for opportunities resulting from early disposals by fund managers seeking to raise new funds by disposing of assets that have already achieved their target returns.





Although real estate continues to offer attractive returns compared to other asset classes, the upward rental cycle is at a late stage. CBRE believes that investors should therefore reduce their weighting on cyclical investments and strengthen their focus on structural opportunities.

Leverage the decentralisation trend
Occupiers in mature markets are relocating back offices or even consolidating entire operations to decentralised areas to reduce real estate overheads. In markets such as Hong Kong SAR, this structural change is being accelerated by the economic downcycle, with numerous multinational companies already relocating outside the Central CBD. In particular, activity in Kowloon East is expected to gain further traction. In Australia, North Sydney is emerging as an attractive option for tenants seeking to leave the CBD in search of lower rents. New infrastructure including a metro rail link between North Sydney station and Barangaroo and Martin Place, which is due to be completed in 2024, are also supporting this shift.

Decentralisation is also occurring in emerging markets. In China, many occupiers are moving to secondary business districts to provide a better working environment for their employees, with Wangjing now established as a hub for technology companies in Beijing, and North Bund and Qiantian attracting several major companies in Shanghai.

Capitalise on developers’ liquidity needs
Although the cost of financing has fallen along with lower interest rates, CBRE continues to track a considerable number of real estate debt opportunities across the region, especially in China. Between 2020-2022, Chinese developers will need to refinance RMB 10 trillion of debt. This will provide opportunities for investors to offer development loans or junior and mezzanine debt.

Meanwhile, it is expected that Chinese developers will be more willing to offload non-core assets to recycle capital, which could provide opportunities to investors. Investors may also leverage weak residential sales in Thailand and Indonesia and continued tight real estate bank lending in Vietnam to form equity partnerships with developers to increase their real estate exposure in Southeast Asia.



Accept that retail is here to stay
Although retail has fallen out of favour among many investors, shopping malls managed by experienced landlords continue to perform well. For example, Chengdu IFS shopping mall has recorded double digit revenue growth per annum since opening in 2014. With management expertise more important than ever before, partnering with local operators with proven track records remains a viable opportunity for investors. Elsewhere, several retail focused funds in Australia facing redemption requests could create opportunities for experienced retail investors or buyers with long investment horizons.

Community shopping malls near residential catchments remain attractive defensive assets as non-discretionary spending usually remains resilient. In China, restaurant receipts have maintained steady growth despite the economic slowdown, rising by 9.4% y-o-y in 2019. Hong Kong SAR suffered a significant fall in retail sales in H2 2019 but sales of commodities in supermarkets recorded steady growth in November.

Stay on top of megatrends driving niche sectors
The advent of 5G, ageing populations and the growth of online grocery stores will create new opportunities to invest in niche sectors in 2020. While data centres and senior housing require intensive management and involve significant maintenance, there are opportunities for investors to form partnerships with experienced operators or engage in platform deals. Cold storage facilities are also set to gain further traction as an investment class, with the warehouse of the future likely to consist of dry storage compartments and temperature-controlled storage areas to allow for shifts in consumption trends.

Although the multifamily model remains confined to Japan, opportunities are emerging in Australia and China. Australia continues to record strong population growth driven by immigration, while China’s recent relaxation of the Hukou policy allowing people to move to cities with 3-5 million permanent residents will drive new demand for accommodation in tier II cities such as Xi’an, Suzhou and Ningbo.

Refine tenant mixes
Investors are advised to enhance portfolio resilience in 2020 by adjusting their tenant mix. Adding retail and service-oriented components as part of a broader amenity offering can help office landlords attract and retain tenants. Considering non-traditional office occupying tenants who are more resistant to economic cycles is another approach. In Hong Kong SAR, research by CBRE has found that healthcare providers and medical centres display stronger loyalty to a particular building or landlord and typically pay a 10%-20% rental premium compared to traditional office occupiers7.



7Healthy returns: Medical real estate opportunities in Hong Kong SAR, CBRE Research, November 2019

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Greg Hyland
Head of Capital Markets
Asia Pacific
Capital Markets
+65 6224 8181
+65 9818 1537
+65 6225 1987
Dr. Henry Chin
Global Head of Investor Thought Leadership
& Head of Research, APAC
+852 2820 8160
+852 2810 0830