Appetites for Asia-Pacific real estate remain muted amid ongoing concerns over a lasting high-interest rate environment, according to a CBRE’s Q1 2023 Asia Pacific Cap rate Survey.
Buying intentions among yield-sensitive real estate funds and institutional investors declined in the first quarter, the report said. Private investors, particularly those in Hong Kong, Australia and New Zealand, were the only investor type that showed higher buying intentions relative to the prior quarter. That group comprises individual buyers or groups of individuals backed by private money.
The proportion of real estate funds intending to sell assets remained flat at 50 percent, while the proportion of private investors intending to sell plummeted from 29 percent in Q3 2022 – when the last CBRE survey was published – to 11 percent as of Q1 2023.
While logistics remains the most preferred asset class for real estate investors in a low-risk appetite environment, interest in the sector has dropped. In particular, traditional logistics facilities saw a drop from 35 percent to 19 percent in terms of interest enquiries. Meanwhile, prime shopping malls/high street shops and alternative are the only two sectors with growing enquiries from investors.
The lasting high-interest rate environment and the uncertain economic environment are the top concerns for investors in the next six months, the report said. While only 28 percent of respondents thought the mismatch in buyer and seller expectation would be a major challenge in the next six months, the wide expectation gap between the two has been voted as the biggest obstacle in making an investment decision at present. This is followed by the limited cap rate expansion, with 49 percent identifying it as a concern.
Despite this, the CBRE report noted most sectors are seeing a narrowing price gap. Traditional logistics facilities are an exception, with more investors looking for discounts.
Interest rates in Asia-Pacific are expected to stabilize after May but will remain high in the second half of 2023 except for Japan and China, which have traditionally favored a low-rate policy, the report said. Australia and New Zealand have seen the highest rate hikes since last year, recording 100 basis points and 75 basis points increases, respectively.