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Feb 08, 2023 / 20:22

Forces shaping Asia Pacific real estate in 2023: Colliers

Hospitality real estate is a worth-watching segment in 2023, as Vietnam strives to capitalize on the rebound of travel and leisure needs from domestic and international tourists post-pandemic.

Real estate in Vietnam and other Asia Pacific countries remains strong backed by solid fundamentals, with some exceptional opportunities for investors who have the right strategies and resources, according to Colliers, a global property services firm. 

 In Vietnam, office, industrial, and logistics real estate will be the highest demand in 2023. Photo: Doan Thanh/The Hanoi Times

Colliers’ experts have said real estate markets in the Asia Pacific have been in a reset and that is going to continue in 2023. In the face of solid fundamentals, sentiment among real estate investors today looks very much like cautious anticipation of steady growth and healthier long-term returns beginning in the latter part of 2023.

Real estate, most certainly, is not immune to market volatility, investors are highly conscious of some of the advantages the current situation presents in the region. There are some exceptional opportunities in the Asia Pacific for those with the right game plan and resources, according to the property firm.

“Businesses are accordingly realigning plans and investors are sharpening strategies to pick the right markets and assets for robust returns this year. In doing so, it’s crucial to first identify the underlying forces shaping real estate in 2023,” the firm highlighted.

Inflation, interest rates and world economics

Central banks globally will continue to raise interest rates to combat inflation, although expected at a slower pace in 2023. The persistent inflation – aside from causing commodity price increases, supply chain disruptions, and hindrances to the domestic demand recovery – has also weakened Asian currencies against the USD. As this makes regional real estate cheaper in dollar terms, it could potentially reignite deals presently on the back burner. 

What’s seen weighing on the external demand for Asia Pacific real estate is the US and eurozone economies faltering in 2023, due to weakened global economies. However, these headwinds in Europe and the US make the regional markets relatively safer and a haven for property investments.  

Colliers’ consensus is that real estate markets will start to stabilize by mid-2023 with more certainty emerging around the interest rate outlook. 

David Jackson, CEO of Colliers (Vietnam), said: “Despite uncertainties, there remains a significant amount of unsatisfied capital looking to be placed in real estate. In Vietnam, office, industrial, and logistics real estate will be most in demand in 2023.”

He added the next type of assets to be on investors’ radar would be in the housing and serviced apartment segments, especially those serving the real needs of workers, experts, and expats migrating to Vietnam and industrial clusters in the country. 

“Another interesting segment worth watching in 2023 is hospitality real estate, as Vietnam is striving to capitalize on the rebound of travel and leisure needs from both domestic and international tourists post-pandemic,” he underlined. 

Asset re-pricing

As property markets come to terms with the phase of slower investment activities, a pricing reset across markets is underway in the face of interest rate hikes. This is driving a shift in investors' strategies, with capital values expected to correct by up to 30%. 

The shock the market is presently feeling can largely be absorbed, as the current market dynamics do not echo the past financial crisis when loan-to-value levels were much higher than today. These conditions, we believe, are creating new opportunities. 

Nguyen Viet Hoang, Director of Business Development, at Colliers (Vietnam) said now is a time of opportunity. If investors pick their markets, assets, and strategies carefully, this is a good time to capitalize. 

“Cash is king and equity-driven investors, notably the private buyers can bid for assets in an environment with the limited buy-side competition. They are typically immune to market forces and will continue to be active despite market flux. Markets with safe-haven status will be active and locations with deep, embedded levels of private capital will prosper,” he said. 

Regional resilience 

Asia Pacific remains resilient with largely stable capitalization rates, gradually steering towards a sustainable recovery. Despite vast and complex regional differences across property markets, we see investors highly keen on the 3Ls – logistics, living, and life sciences – as demand for these businesses continues to grow globally. 

Asia Pacific is a strong consideration for longer-term real estate exposure given its relatively faster pace of economic growth, burgeoning consumer class, and rapid urbanization, along with its tech leadership in e-commerce, artificial intelligence, data analytics, and communication networks.

Investors’ preference in the region is largely the big cities, signaling choice for known markets that potentially deliver value during a pricing reset. Japan is on investors’ 2023 priority list for office, industrial, and multifamily asset classes, driven by the weak Yen and the country’s comparatively benign inflation outlook. Australia, Singapore, and South Korea are also seen as front runners in luring investors. 

Though some recent changes may prompt investors to be more cautious, Vietnam still projects a consistent reputation as a safe place to park money amid global turmoil due to the pandemic, geopolitical conflicts, supply chain disruptions, and economic uncertainties. Yet, occupiers, as well as owners and investors across regional markets are already leading with an ESG focus to future-proof their strategies. 

 Technology-led structural changes

Across the globe, people have embraced new ways of shopping, working, living, and dining, and moving forward, technology will continue to underpin further social changes. In real estate, technology has led to a quicker evolution of how owners interact with occupiers, real-time facilities management, and tools that enhance productivity and maximize user experience. 

In fact, technology has impacted each sector differently. While for industrial, it allows operational efficiencies against rising costs, for retail, online platforms will continue to evolve with greater emphasis on click-and-collect. For offices, the opportunities lie in technology allowing occupiers to be highly creative and flexible with their workplace and workforce strategies. 

 The development of industrial parks in Vietnam needs to ensure the integration of sustainability factors and an ecosystem to improve their attractiveness. Photo: Tieu Thuy/ The Hanoi Times

Defensive assets on investors’ priority list

 As investors pursue a defensive assets strategy, office and industrial and logistics (I&L) real estate are most in demand in 2023. Colliers’ 2023 Global Investor Outlook reveals that beyond office and I&L, multifamily now notably outpaces retail and hotels, and a good number of investors are interested in specialized assets (alternatives). Big-box warehouses are now more in demand, compared to last-mile distribution, and is the top I&L pick in 2023. Also, there’s higher interest in industrial parks/manufacturing facilities and container terminals. 

Vu Minh Chi, Senior Manager of Industrial Services, Colliers (Vietnam) suggested as market players reassess their portfolios amid greater uncertainty, investors will gear for high-quality and inflation-proof assets.

He added: "The development of industrial parks in Vietnam, therefore, needs to ensure an integration of sustainability factors as well as an ecosystem to improve the attractiveness and readiness for luring large and long-term foreign investors.” 

Sustainability fueling a flight to quality

There’s growing emphasis investors are placing on environmental, social, and governance (ESG) criteria and ratings of real estate. This is not just for regulatory and reputational reasons, but increasingly in response to occupier demands in experiential workplaces and to also balance out asset operational costs over the longer term. 

Investors are focusing on assets with strong sustainability characteristics, with expectations that these will command a premium. Non-compliant assets will be increasingly confined to discounted territories and targeted for redevelopment, as disposal and acquisition strategies are activated. 

Cao Le Tuong Van, Director of Capital Markets & Investments Services, Colliers (Vietnam), said: “Despite slower investment decision-making, and defensive underwriting, the importance of ESG in real estate will only grow in 2023.”

Previously, the sometimes-low ROI of ESG projects dissuaded investments, but as most companies prepare to face the global economic challenges in the year ahead, every dollar spent must be justified. Today, the lower operating costs of ESG projects are becoming a draw, helping both occupiers and landlords save money while enhancing efficiency.

“We recommend taking a flexible approach, as the market is changing quarter-by-quarter,” she said.