Leading diversified professional services and investment management company Colliers (NASDAQ and TSX: CIGI) has announced that it has today released its Asia Pacific Market Snapshot | Q3 2022 report, which shows that most major real estate markets across the region continued to perform well in the third quarter, despite the loss of some growth momentum in the face of difficult macroeconomic conditions marked by high inflation and rising interest rates.

Chris Pilgrim, Director, Global Capital Markets at Colliers, said: "Despite current market conditions, we still see long-term investment opportunities across Asia Pacific. Most investors are understandably passive but changing market conditions can create new ways for multinational investors to capitalize, notably private buyers who can bid for assets with limited buy-side competition. Heading into Q4, we also expect investors to find investments in Asia relatively more protected from continued interest rate hikes, in comparison to the European and North American markets."

John Howald, Executive Director and Head of International Capital, Capital Markets & Investment Services | Asia Pacific at Colliers, said: “It’s clear that investors across the region are continuing to take a cautiously optimistic view of the future amid ongoing macro challenges, as seen by the dealmaking trends in major APAC markets. As Covid-19-related restrictions have continued to ease, we are seeing employees returning to their offices and a resumption of cross-border travel in the region, all of which should help investor sentiment pick up in Q4.”

John Marasco, Managing Director, Capital Markets & Investment Services | Australia and New Zealand at Colliers, said: “The current economic environment has tempered sentiment and investors are understandably wary, but they continue to see value in the right places. We expect demand for industrial assets to stay resilient, while in the office segment, a flight to quality and growing focus on ESG underscore confidence in core and prime-grade assets. Meanwhile, open borders are now welcoming tourists as well as foreign students, which augurs well for the retail, hospitality and housing segments. Overall, we expect to see stability return to the markets as interest rates begin to plateau from Q4 and beyond.”

Key Australian markets witness rebound in dealmaking

An ongoing flight to quality across Australia’s occupier market continues to underpin recovering office fundamentals, particularly across the prime end of the office sector. Melbourne recorded transactions worth more than USD1 billion while Sydney saw deals amounting to nearly USD420 million being finalized. A transitionary period amidst a rising interest rate cycle still exists as vendors continue to work through a re-pricing discovery phase. However, we expect transactions to pick up in Q4 and beyond as pricing expectations start to converge. In New Zealand, investors will broaden their options as asset prices adjust to a market impacted by rising interest rates and the end of Covid-19-related restrictions.

Office segment continues to drive activity in Chinese markets

As in the previous quarter, transactions in China’s major cities were dominated by deals in the office segment. In Beijing, office assets accounted for 84% of the nearly RMB4.1 billion (USD577 million) in transactions, and it is expected value-add and core plus office investment opportunities in central areas of the capital will draw domestic and foreign investors. In Shanghai, where office space accounted for 12 of the 21 transactions worth nearly RMB25.06 billion (USD3.53 billion), the REIT market – in addition to properties related to the new economy and life sciences sectors, and rental apartment projects – will attract institutional investors. In Guangzhou and Shenzhen, offices accounted for about 78% of the transaction value of RMB4.38 billion (USD616 million) and investors are expected to focus on business parks, office spaces, data centres and logistics units, as well as retail assets in core areas. In Chengdu and Xi’an, with the latter city witnessing one transaction worth nearly RMB488 million (USD68.7 million), state-owned enterprises will continue to drive demand.

Upbeat sentiment, promise of investments fuel Indian real estate

Rising absorption rates in the residential, office and logistics segments underlined the buoyancy in India’s real estate market. Demand for housing held up despite rising mortgage rates, while office occupiers expanded their footprint, and explored flex and managed space options. The festival season should sustain demand in the residential and logistics segments while the latter will be further supported by the planned influx of nearly USD20 billion in investments into the manufacturing sector. We also expect a listing of major office and retail REITs in 12 months’ time.

Industrial assets aid deal spurt in Hong Kong

The quarter witnessed 25 major deals worth HKD34.2 billion (USD4.38 billion) – a QOQ jump of 93% – with most of the deals involving industrial assets. We expect sentiment to pick up in Q4 on expectations that Hong Kong, which continues to offer plenty of opportunities to domestic and global investors, will further relax border control measures. Higher cap rates made possible by the rate hikes will prove attractive and, once the border with mainland China reopens, retail assets in the core district will be sought after while industrial assets will continue to attract institutional investors.

Singapore market activity checked by macroeconomic factors

The strong momentum achieved in the first half of the year was restrained by high inflation and rising interest rates however, investment volumes reached a year-to-date total of SGD23.93 billion (USD16.7 billion) in investments, or 85% of the total figure for 2021. Market players will reassess their portfolios amid the uncertainty, triggering a period of price discovery and repricing, and higher demand for high-quality and inflation-proof assets. Once the threat of inflation wanes and interest rate rises taper off, institutional investors will again turn to Singapore for opportunities, mainly in the commercial, office and logistics segments.

Investors continue to be drawn to Seoul office market

Core office assets in Seoul continued to drive investments, with transaction volumes reaching KRW3.1 trillion (USD2.2 billion) in Q3 despite the macro environment hindering financing. Overseas investors are expected to return to the market once the required funds are secured, although a lack of supply and high interest rates could impact the size of investments in prime office assets.

Depreciating yen, reopened borders support Japanese real estate

A weak yen aided cross-border transactions, despite rising prices hurting demand and a slowing down of the market recovery that had started earlier in the year. Looking ahead, the Bank of Japan’s continued low-rate stance and the country’s decision to relax border restrictions for most inbound travelers are expected to boost overall demand and benefit the hotel and hospitality segment, while facilitating deals involving overseas investors.

Download the Asia Market Snapshot | Q3 2022 report here.

Related Reading:

Colliers appoints Chris Pilgrim Managing Director Asia Pacific Global Capital Markets | RE Talk Asia

Asia Pacific investment volumes soften in third quarter of 2022 | RE Talk Asia

Holiday spending to boost Philippine retail real estate - Colliers | RE Talk Asia

Colliers named winners at RICS Awards Hong Kong 2022 | RE Talk Asia