2023 Asia Pacific Real Estate Market Outlook (EN)

2023

Asia Pacific Real Estate Market Outlook

Turbulence amidst the Recovery

Inflation to peak in 2022 before easing in 2023

Fed Funds Rate to crest in 2023, ending the steepest ever rate hike cycle

No growth in 2023

GDP growth in Asia Pacific to lose momentum in 2023

Recovery in 2023

Steady increase in tourist arrivals expected

Asia Pacific investment volume by markets

Investment activity loses momentum from H2

Asia Pacific investment volume by investor type, 2021 vs. 2022

BUYING AND SELLING INTENTIONS

Fear of recession and central bank policy top list of challenges

What are the major challenges facing real estate investment in 2023? (select top three)

Respondent origin

Fear of a recession and economic uncertainty

Central bank policy (e.g. Too aggressive with interest rate hikes, not enough quantitative tightening)

Mismatch in buyer and seller expectations

Mainland China, Hong Kong SAR, Singapore Australia, Japan, India, New Zealand Korea

Uncertain geopolitical landscape (e.g. Ukraine, East Asia)

Shift in credit availability and loan terms

Higher and/or more persistent inflation

Impact of currency fluctuation

Mainland China, Japan

0% 20% 40% 60% 80%

2022 2023

Source: 2023 Asia Pacific Investor Intentions Survey, CBRE Research, January 2023

INVESTORS MOVE INTO WAITAND-SEE MODE Prime yields relative to borrowing costs (by Asia Pacific city)

Negative carry observed in almost all markets; biggest in Hong Kong

Office

Retail Logistics

Note: Yields of regional centres are used in Pacific markets. Vietnam adopts asking prime yields due to limited number of transactions. Source: Macrobond, CBRE Research, February 2023

Yield movement (Global Financial Crisis vs. COVID-19 pandemic)

Yield expansion remains limited

Source: CBRE Research, January 2023

Note: The GFC period yield spreads are calculated based on the peak to trough during the GFC; the 2023 yield spreads are calculated ba sed on forecasted 2023 yield and the trough during the 2021 – 2022 period.

INVESTORS

Top 10 cities for investment and preferred strategy

HCMC and Hanoi made it to top 10 for cross-border investment

Mumbai

Key strategy: Opportunistic

Key strategy: Core-plus to opportunistic

Key strategy: Core to value-add

Key strategy: Core-plus to value-add

Key strategy: Value-add to opportunistic

Key strategy: Value-add to opportunistic

Singapore

Key strategy: Core to value-add

Key strategy: Value-add to opportunistic

Key strategy: Across all strategies opportunistic

Key strategy: Across all strategies

Refinancing

pressure is high among mainland Chinese developers

Asia Pacific Listed Real Estate Companies’ Interest Expenses Change from 2022-2023F Y-o-Y (%)

Some

Source: Capital IQ, CBRE Research February 2023

Note: 142 listed real estate companies with a market cap of US$1bn+ in Asia Pacific were analysed

*Korea – no listed real estate companies with a market cap below US$1bn, so all listed real estate companies for the market were included

debt-burdened landlords may offload assets to improve their balance sheets

RETAIL LEASING DEMAND REBOUNDS AS SPENDING RECOVERS

Most retailers intend to expand their store networks

Plans for physical store networks in 2023

Where do retailers intend to locate new physical stores in 2023?

71% Planning to expand/add new stores

14% No further downsizing or upsizing plans

15% Planning further closures/con solidation

high streets in city centres

Note: Figures may not add up to 100% due to rounding issues

Source: 2023 Asia Pacific Retail Flash Survey, CBRE Research, January 2023.

RETAIL LEASING DEMAND REBOUNDS AS SPENDING RECOVERS

Mainland China, Singapore and Hong Kong SAR will be the focus for retailer expansion

Top destinations for cross-border expansion

Return of tourists

Government stimulus

Rebound of Domestic consumption

Beneficiaries of currency depreciation

RevPAR & ADR for in major Asia Pacific markets (December 2019 vs December 2022)

Average Daily Rates (ADR) in most markets are well above pre-pandemic levels

E-commerce growth normalises as shoppers return to

brick-andmortar

40%

35%

30%

25%

20%

15%

45% Korea Mainland China Singapore Hong Kong SAR Australia 2021 2022 Jan - Nov Ecommerce Penetration (Nov 2022)

Alibaba: Up 970% Amazon: Up 820% 5%

10%

Source: CEIC, National Statistics Bureau, Korean Statistical Information Services, CBRE Research, January 2023.

Note: Customer acquisition cost = sales and marketing expenses divided by the growth of number of active users

RETAIL LEASING DEMAND REBOUNDS AS SPENDING RECOVERS

Retail rents to experience mild growth

2022 – 2023 retail rental forecast

Vietnam numbers are >30% in 2022

Growth to resume

Growth to slow

2022 2023F

Remarks: Retail rental growth refers to high streets in prime areas except mainland China, Singapore and Australia where G/F ren ts of shopping centres are reported. Pacific reports net effective rents of regional centres unless specified.

Source: CBRE Research, January 2023.

RETAIL LEASING DEMAND REBOUNDS AS SPENDING RECOVERS

Markets

Industrial (Prime) net effective rental growth vs spread Forecast as of January 2023* (CBRE House View)

Spread (as of Q4 2022)

Source: CBRE Research, January 2023.

Note: Vacancy is the latest available data for each market, and is represented by the size of the bubble within the graph Spread represents the risk premium, which is the difference between property yields and 10-year government bond yields Colour of bubble represents each different market

with tighter industrial vacancy are generally seeing significantly higher rents and tighter spreads

OFFICE LEASING DEMAND REMAINS WEAK

Asia Pacific Leasing Market Sentiment Index – weakened in late 2022

Note: indicators were revised in June 2021

Market sentiment is based on the simple average of net intentions (net % difference between positive and negative answers) of seven surveyed indicators.

Source: Asia Pacific Market Sentiment Survey, December 2022

LEASING DEMAND REMAINS

Note: Grade A rents represent rents in CBDs and core locations of each representative market.

Source: CBRE Research, January 2023

OFFICE LEASING DEMAND REMAINS WEAK

Office occupiers plan for next generation workplace

Office satisfaction by location, Asia Pacific

Factors to encourage return to office Asia Pacific

78% want access to public transportation

73% want environmental features

City centre Established/ emerging disctricts

Suburbs

69% want free F&B options

65% want to track their co-workers

Source: 2022 Asia Pacific Live Work Shop Survey, CBRE Research, December 2022

71% want focus space

68% want improved technology

2023 Investment Strategies

Conformist

Target sectors and markets

• [Core] Purchase good quality office assets in gateway cities as a structural play.

• [Core to value-add] Consider offices in Sydney, Melbourne, Hong Kong SAR and Shanghai, which could offer an attractive entry point in 2023.

• [Core] Target prime modern logistics assets in Australia where vacancy is low and regional cities in Japan where yield spreads are attractive.

• [Core] Pursue multifamily assets offering attractive cash-on-cash yields in Japan and development opportunities in mainland China and Australia.

Contrarian

Target sectors and markets

• Realise profits by disposing of earlier investments in logistics and multifamily, especially as cap rates are expected to move out across the region.

• [Value-add to opportunistic] Look at hotels as tourism rebounds in 2023.

• [Value-add to opportunistic] Capitalise on attractive pricing for prime retail assets across major gateway cities and selected secondary locations in Hong Kong SAR, Tokyo and Osaka.

• [Value-add to opportunistic] Focus on mainland China for trophy office assets in Shanghai, and Beijing; business parks and modern logistics facilities and builtto-rent in Beijing and Shanghai.

Source: 2023 Asia Pacific Investors Intention Survey, CBRE Research, January 2023.

Vintage Target sectors and markets

• [Opportunistic] Identify value between public and private markets, especially in Australia, although the window of opportunity will be limited.

• [Value-add to opportunistic] Engage in debt investment including senior to junior loans in Korea, Hong Kong SAR, Singapore and Australia. Examine potential distressed opportunities in mainland China, Korea and Australia, where refinancing risk is high.

• [Core] Take advantage of the brief window of opportunity to buy high quality assets.

Thank

you!

For more information, please contact:

henry.chin@cbre.com.hk

This presentation has been prepared in good faith based on CBRE’s current views of the commercial real-estate market. Although CBRE believes its views reflect market conditions on the date of this presentation, they are subject to significant uncertainties and contingencies, many of which are beyond CBRE’s control. In addition, many of CBRE’s views are opinion and/or projections based on CBRE’s subjective analyses of current market circumstances. Other firms may have different opinions, projections and analyses, and actual market conditions in the future may cause CBRE’s current views to later be incorrect. CBRE has no obligation to update its views herein if its opinions, projections, analyses or market circumstances later change.

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