(30 March 2020, Hong Kong) As Q1 2020 is mired in disruptions to travel, supply chains and business activities due to the unpredictable nature of COVID-19, investors across Asia Pacific have moved into wait-and-see mode. However, findings from CBRE’s latest Asia Pacific Investor Intentions Survey indicate that most investors retain a healthy appetite for commercial real estate, with approximately 75% of survey respondents expressing an interest in maintaining or increasing investment activity in 2020. The continued lowering of interest rates in economies across the region will also support asset pricing with potential to see yield compression in major core markets when economies stabilize.
Stable income stream and the higher yield spread offered by commercial real estate relative to other asset classes has become the key propellant behind real estate investments. Dr. Henry Chin, Head of Research, APAC/EMEA at CBRE noted: “Tokyo’s lower financing costs and attractive yield spreads has seen it regain its title as most preferred city for cross-border investment, here, and pursue opportunities in logistics and multifamily.”
Hong Kong ranks the eighth in this year’s top ten preferred cities for cross-border investment. Reeves Yan, Executive Director, Capital Markets, CBRE Hong Kong said, “Liquidity remains highly stable in Hong Kong’s banking system, with no noticeable change over the past 9 months. Investors’ confidence on Hong Kong, therefore, remains solid.”
“Give the low holding costs and strong financial fundamentals of vendors, there are not many distressed assets in the market to date. We have not seen and we do not expect much cut-throat deals to come through. However, we see this is a better time to negotiate than any time in the past 5-10 years,” said Yan.
Beijing eclipsed Shanghai as the most preferred investment destination in Mainland China for the first time, supported by healthy demand and supply fundamentals, with decentralized locations such as Lizu and Wangjing also on investors’ radars.
In line with investors’ pursuit of long-term, structural opportunities, almost 75% of survey respondents indicated that they are actively pursuing opportunities in alternative assets, with interest in data centers increasing significantly.
Dr. Chin said: “With the rising prominence of Big Data, Industry 4.0, the Internet of Things, 5G development and the mainstream adoption of cloud-based services, investors are keen on data centers but are faced with the issue of limited availability. Across Mainland China, India and Southeast Asia, partnering with experienced operators or developers is a viable entry route for investors.” As the proliferation of online grocery and fresh groceries shopping takes places across the region, cold-storage is emerging as a sub-asset class presenting new opportunities for investors.
Office remains the most preferred sector for investment, a trend even more pronounced after the COVID-19 outbreak and is expected to be the first sector to recover. While office and industrial properties will remain the more sought-after asset classes in Hong Kong given the solid demand and stable income stream in the long run, value-add strategy also applies to some hotels and industrial assets with potential for conversion/revitalization and redevelopment purposes. Select neighborhood retail malls with value-add potential will also be on investors’ radars.
As global economic uncertainties pervade the current investment climate, CBRE expects short-term decision making to be affected. However, the long-term outlook is expected to brighten, with recovery in Asia Pacific outpacing other economies and fueled by spare capital, along with investors’ willingness to explore alternative asset classes and capitalize on structural factors. Sustainability will continue to pervade investors’ decision making in the long term as effects from COVID-19 subside.
You can download the report here.
