A survey conducted by CBRE has revealed that investors anticipate the investment in real estate within Asia Pacific (Apac) to increase in the 2H2023, aided by a decrease in anxiety about interest rates and an increase in capitalisation rates which will close the gap in expectations of price between sellers and buyers.
Capitalisation rates (or caps rates) (which determine the value of a property by dividing its annual earnings by the sale price in Apac are expected to increase in the 2H2023, extending an increase that was recorded in 1H2023 for all property kinds. The increase was observed across the majority of Apac cities, with the one exception: Japan as well as mainland China which have interest rates that remain in a stable state.
In the next 6 months CBRE anticipates that cap rates will increase by up to 150 basis points, fueled by higher borrowing costs as well as an uncertain economic climate. Cap rate increases are expected to be the most significant for retail and office core assets.
With this in mind, CBRE notes that most sectors are seeing prices that are less expensive which includes Grade-A office retail, industrial-grade modern logistics as well as hotel and multifamily properties. On the other hand the case of traditional logistics areas, buyers are seeking bargains and this suggests that prices could be close to their highest.
The coming months will provide information on the interest rate. CBRE observes that the majority of Asian countries have witnessed rates stabilizing in the last few months. “The rate of interest appears to be nearing its peak and we believe this will result in price discoveries in markets like South Korea and Australia,” says Greg Hyland, head of capital markets, Asia Pacific, at CBRE.
In light of the anticipated increase in cap rates and the certainty regarding interest rates, more than 60% of the respondents to CBRE’s survey believe Apac investments will pick up during the second half of this year. In general, Japan is anticipated to be the leader in the recovery of investment in the 3rd quarter of 2023 being followed by Mainland China and Hong Kong in 3Q2023 as well as Singapore, India and New Zealand in the 4Q2023.
According to the study the survey shows that private investors have the greatest appetite for buying and REITs and real estate funds exhibit the most fervent desire to sell, due to current refinance pressures as well as the necessity to rebalance portfolios. Nearly half of respondents stated their belief that costs and the availability of financing would be the foremost considerations when considering acquisitions due to the rising rates of interest and tighter lending regulations.
Henry Chin, CBRE’s global head of thought leadership for investors and research head, Asia Pacific, points out that the increase in interest rates has dramatically raised prices of funding commercial real properties in the region as higher interest rates discourage investors from refinancing their assets, especially those in Australia, Korea, and Singapore. “We anticipate Korea logistics and Australia offices, and Hong Kong offices to be facing the largest funding gap over the next year, and this may cause greater motivation for sellers during the second quarter of 2023.” Chin says.