PwC & ULI report: APAC’s real estate market is bouncing back

Asia Pacific’s real estate market is expected to see a strong revival in 2022, according to PwC and ULI’s 2022 Emerging Trends in Real Estate APAC report, despite the challenges brought on by the pandemic.

This expected bounce back in 2022 comes off the back of a very strong third quarter in real estate transactions in the region, surpassing US$40bn, up 12% year-on-year and roughly the same as in the third quarter of 2019, pre-pandemic.

And with the deals pipeline in Asia Pacific the region remaining healthy at US$68bn, more than double what it was two years ago, the signs are that next year will be a positive one for real estate transactions in the region.

Are fears of a secular shift away from office retail unfounded?

As Asia Pacific starts to shake off the challenges of the pandemic, the market is seeing a new cycle of growth and investment, according to David Faulkner, President of Urban Land Institute (ULI) Asia Pacific.

“Post-COVID-19 secular trends such as remote working, reduced travel and increased online shopping have brought immense structural changes to the industry in its wake,” he explains.

However, fears about the impact of this on the real estate market may be unfounded. While traditionally favoured sectors of office and retail may have lost their appeal, and doubts persist about the prospects for both sectors, they have seen a notable reversal in sentiment during the second half of 2021, to a record US$22.7bn in the third quarter, according to RCA, while retail assets recovered to their 2019 levels. Many of those surveyed in the report said they are seeing both the office and retail sectors as currently oversold with potentially good prospects over the next 24 months as governments move to ease pandemic containment policies.

“The office market is quite strong in that you don’t see corporates making big decisions at the moment,” says Faulkner.

Logistics sector is highly sought-after

Also, where there are swings, there are roundabouts – so just as the rapid growth of ecommerce has led to closures of retail stores and losses within the real estate market, it has also led to increased demand for real estate for logistical purposes.

In fact, the logistics sector is highly sought-after across APAC, owing to a number of factors. As well as that of ecommerce retail growth recently catalysed by the pandemic, the evolution of more sophisticated supply chains, and increase in data centres due to huge bandwidth demand growth in the region. And these are all contributing to the growth and positive prospects for the real estate market. 

Singapore looks strong for 2022 and beyond

Boasting economic stability, market liquidity and reliable cash flow, Singapore is the second  top-ranking market for investment prospects regionally in 2022, predicts the report.

While the city-state had previously ranked top in most promising for APAC, it was recently pipped by Tokyo which has been crowned as having the most prospects in 2022, as it continues to benefit from low interest rates and an economy that is largely fuelled by domestic demands, which makes it less exposed to outside shocks.

Singapore is still looking strong however, having remained resilient with rebound transactions in 2021 and strong prices in the office space, despite a challenging 2020.

Buying sentiment has been boosted recently by expectations of supply shortages, thanks to factors that include a limited pipeline of new development sites over the near term, the withdrawal of stock from the market for redevelopment purposes, and a belief that the city-state may benefit should foreign companies choose the it as a location for their APAC headquarters.

Yeow Chee Keong, real estate and hospitality leader at PwC Singapore says: “The city-state continues to remain attractive with expectations of supply shortages, growth in office rentals, and possible relocations to Asia Pacific HQs to Singapore.”

Singapore is also the biggest single source of outward investment with US$9.3bn into APAC during the first nine months of 2021, has also emerged as the only city in the region expected to see higher rents in 2022.

“Overall, the investment prospects in Singapore for value-add projects is expected to remain positive. There are also opportunities to take on development projects with the expected change in demand for space in a very liveable city-state,” adds Keong.

Ranking third, Sydney also look promising for prospects in 2022, while Hong Kong, which has been rooted to the bottom of the table for the last two years, jumped to 14th place, fuelled by a a general view that the worst has now passed for the city’s real estate markets.