Real estate markets around the region were remarkably resilient in 2021, which saw an estimated 30% rise in volumes compared with 2020. Transaction volumes had fallen to 2017 levels in 2020, but the bounce back is taking us into record territory for the year. Whether we will see similarly high levels of activity next year is open to debate and much will depend on how the pandemic develops and how policy makers respond.

The latest Omicron variant has scared governments all over the world into clamping down on travel and trade, however markets have been less concerned about a variant which is – at the time of writing – yet to take a life. Higher vaccination rates (Asia is 50% fully vaccinated but some nations have more than 70% double-jabbed) and better treatments should encourage more countries to relax travel restrictions and ease social distancing measures. The different speeds at which markets emerge from the pandemic will be important for cross-border investors, but less so for domestic players, although opening up will be a confidence booster for the whole economy.

There are plenty of reasons to be positive: Asia Pacific economies recovered much lost GDP growth this year and are set to grow more in 2022, with India (8.8%) and China (8.2%) leading the way, although the forecasts for Hong Kong and Singapore (6.5% and 6.4% respectively) are also strong. The weight of capital allocated to the region by private equity real estate funds suggests an active year of deal making ahead. At the same time, a relatively benign inflationary environment leads us to believe that any interest rate rises will be modest.

There are risks out there of course, some related to geopolitical tensions. The region’s economies are more deeply integrated with each other, following a raft of trade agreements negotiated in recent years, and any changes related to tariffs or import restrictions could have a widespread negative impact.

In terms of geographies and sectors, if trends observed in 2021 are evident in 2022 then the focus for cross-border investors will remain on the larger, more liquid markets of Korea, Australia and Japan, while China’s investment activity levels, although high, will increasingly be driven by domestic capital flows. For the international investor, Asia’s largest economy is beset by a range of uncertainties from zero-COVID policies to debt bubbles and shifting government priorities. Hong Kong increasingly moves in sync with the Mainland, while Singapore’s stability should maintain its allure to core value investors.

As it has been over the past few years, industrial & logistics will be the favoured real estate sector, despite widely publicised supply chain disruption. The sector itself has come to encompass a broader and broader range of uses including everything from straightforward manufacturing and storage to R&D, datacenters, high-tech manufacturing, last mile delivery/urban logistics and temperature-controlled facilities.

Sectors once regarded as alternative assets, such as life-sciences real estate, flexible office space, senior housing and multifamily housing are also expected to remain popular in 2022.

Less certain are the prospects for the more established asset classes – traditional offices, high end or tourism-related retail and hospitality. The pandemic, combined with advances in technology and changing lifestyles and working practices, is causing investors to rethink traditional strategies. Regional retail and hospitality have come to rely heavily on cross-border tourism, particularly from mainland China, and without a resumption of travel it is difficult to see a way forward.

Older offices in core business districts meanwhile face challenges from more devolved and technology-enabled hybrid ways of working. Meanwhile, younger generations expect a very different office experience from more seasoned staff with a greater emphasis on health and well-being, collaborative spaces and virtual communications.

Finally, sustainable buildings across all sectors are finally attracting the attention of investors, developers and occupiers, as a rising tide of regulation and a growing awareness of ESG across the region force a rethink. Net zero pathways and the need for low energy buildings will become a priority over the next five to eight years. Mounting evidence of a ‘green premium’ suggests a tangible shift is taking place and investors don’t want to be left behind.

Further reading:
Savills Hong Kong insight & opinion

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