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Asian real estate to reward patient investors

New research points to sectors like retail and office showing signs of improving fundamentals and stability.
Real estate agent with house model and keys

Optimism is growing that new opportunities will gradually emerge in the global real estate market, with signs that Asia, in particular, will benefit from its robust growth story.

This outlook is based on the latest report from Hines, the global real estate investment, development and property manager, entitled “Opportunistic Patience Prevails”.

“To date, real estate performance is on pace with what we predicted entering 2023,” said Josh Scoville, the firm’s head of global research. “With starts increasingly decelerating, lack of new supply will be an important contributor to the ultimate recovery, potentially leading to strong rent growth once demand inevitably improves.”

Further, he added, as the confluence of better fundamentals and heightened liquidity nears, Hines expects investor patience to be rewarded with a range of lucrative new global opportunities.

Asia: a region to watch

Asia’s growth is expected to outpace the globe, despite China’s slowdown, amid vigilance by domestic central banks.

Coupled with inflation coming under control in the region, consensus expects policy rates to ease in 2024 and 2025, according to Hines’ research, although the yield curve for sovereign bonds suggests that long rates in the region could stay elevated, or even rise, over the next five years.

“Markets with rising cap rates are seeing relatively healthy rent growth and sectors like retail and office are showing signs of improving fundamentals and stabilisation, respectively,” explained Hines’ global chief investment officer David Steinbach.

His view is supported by the lack of any real signs of stress in the Asian job markets. Plus, increased tourism and migration is likely to at least partially offset the current weakness in China’s economy.

“A re-start to active property trades is one of the early signs that sellers have capitulated to adjusted valuations,” said Steinbach. “In Asia, total volume dropped 40% year-over-year, but Q2 office volume held steady, and industrial and retail recorded gains of 22.4% and 15.9%, respectively.”

Macro trends to drive global demand

Beyond Asia, Hines also identifies four themes reshaping the economic, social and real estate landscape: deleveraging, deglobalisation, decarbonisation and demography.

“Our research points toward two key signals to watch in the current environment – an increase in global transactions and a link between shifts in bank lending norms and real estate performance,” said Steinbach.

According to Hines’ observations, the European real estate market appears to be further along in its transition with notable decreases in tightening compared with the US, where the second quarter was the third three-month period in a row with more than 60% of surveyed banks tightening underwriting standards on CRE loans.

Combined with emerging macrotrends, along with economic and geopolitical forces, investment strategies and priorities are changing. “It is also a catalyst for meaningful long-term transformation that often leads to new sources of demand, revenue and opportunity,” Steinbach added.

Part of the Mark Allen Group.