Robust economic growth and an influx of capital have powered the Asia Pacific real estate market over the past decade, said a recent research by CBRE.
The report, ‘Real Estate Outlook 2019’, added that 2019 will bring an unprecedented set of challenges, including U.S-China trade conflict, financial sector instability and the rising cost of borrowing.
CBRE’s research predicted that now is the opportune time for occupiers and investors to refine their strategies and build resilience to real estate market volatility.
- Capital Markets: Investors should realise gains on early investments or rebalance portfolios through asset enhancement. CBRE also advises a stronger focus on structural investment opportunities.
- Office: Landlords and tenants continue to redefine the usage of office space, a trend that will accelerate the adoption of “Core x Flexi” strategy at the asset and portfolio level.
- Retail: Retailers will focus on improving the quality and performance of their store networks to align with the broader shift towards omnichannel strategies.
- Logistics: Tight space availability will oblige occupiers to embrace technology as a means to improve operational efficiency.
The CBRE research said that the weaker investment sentiment, the financial market volatility and the U.S.-China trade conflict will prompt greater caution among investors in the real estate market.
It added that real estate fundamentals were solid, and that corporate expansion is prudent but healthy. CBRE believes that new opportunities for growth will emerge as Asian markets, particularly China, remove barriers to entry.
With regards to capital markets outlook, CBRE said that placemaking will be implemented to unlock hidden value in the real estate market. it believes that investors will focus on asset level tenant mix and design to create integrated communities with a neighbourhood feel. This applies to the office, retail and industrial sectors.
Investors will also ride on structural trends, and with that, modern logistics, data centres and multifamily assets will continue to benefit from shifting lifestyle and spending patterns. Investors are also considering debt investment, the research said. Adding, investors are shifting to debt strategies as the market cycle matures, with debt frequently offering more protection than equity.
In the office segment of the real estate market, there is consistent demand, the report noted. Office markets across Asia Pacific will operate within a stabilized pace of expansion, it said. Adding, technology companies and flexible space operators, including coworking, are expected to lead demand for office space.
Other observations about the office segment includes:
- Co-working Fragmentation: Financial performance will be key for operators. CBRE expects operators to focus on improving occupancy rather than opening new centers, which could lead to a slower demand growth and consolidation in 2019.
- Peak Development: New developments are peaking, with nearly half of new office supply concentrated in non-core or decentralized areas – particularly in Shanghai, Bangalore and Delhi NCR.
- Moderating Rents: The region is expected to record slower rental growth compared to the five-year average – apart from Singapore and Guangzhou. Perth is expected to see the strongest rental recovery.
- Space Redefinition: Tenants will continue to redefine the usage of office space. Real estate assets will become more agile. The use of flexible space to complement core portfolios will be accelerated as tenants respond to the changing business environment and minimize costs and liabilities.
In its outlook of the office segment, CBRE said that space is being redefined and tenants will continue to redefine the usage of office space. Real estate assets will become more agile. The use of flexible space to complement core portfolios will be accelerated as tenants respond to the changing business environment and minimize costs and liabilities.
The report added that landlords will move towards service differentiation through closer partnerships with tenants, and that this will be essential to creating a better end product.
CBRE’s outlook for the retail segment of the real estate market said that there was a omnichannel evolution happening. The retail sector was moving towards an omnichannel strategy – where traditional bricksand-mortar stores are revolutionized as brand experience centers to complement the proliferation of e-commerce platforms, the report said.
It added that new relationships were being forged, and that landlords will benefit from revolutionising their relationship with tenants and broaden their trade mix with more elements of entertainment. It will become increasingly important for landlords to transcend the traditional role of space provider and partner with tenants in executing their marketing and growth strategies.
Logistics segment of the real estate market will be technology-enabled, said CBRE in its outlook. It added that tenants must embrace technology to improve supply chain operational efficiency. Landlords are advised to upgrade industrial and logistics portfolios to ensure they remain competitive.
It asked stakeholders in the logistics sector to consider specialised properties. Investors should explore opportunities
to acquire specialised logistics properties such as last mile logistics space and cold-chain logistics facilities, it added.
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