Pricing and Interest Rate Fluctuations Creating Challenges and Opportunities for Real Estate Investors in Asia Pacific

Bunthoeun 10/March/2023 07:23
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Key Takeaways: 

  • Pricing and interest rate uncertainties will influence capital deployment into Asia Pacific commercial real estate
  • Transaction volumes in Asia Pacific commercial real estate is expected to fall in 2023, with the largest proportion predicting volumes to decline by 11-20%
  • Despite expected declines in capital deployed due to pricing and interest rate uncertainties, longer-term optimism remains high

“Nevertheless, uncertainty often creates opportunities,”

Real estate investors are facing new challenges in 2023 as pricing and interest rate uncertainties impact capital deployment into Asia Pacific commercial real estate, according to the Asia Pacific Investor Sentiment Barometer 2023 by the global real estate consulting firm JLL.

The report found that 78% of investors identified pricing uncertainty as the biggest challenge to capital deployment, while 70% believe that unpredictable interest rate policies globally will also impact investment decisions. This shift marks a change from early 2022 when competition for assets was the biggest capital deployment challenge.

Additionally, factors such as slowing GDP growth expectations, rising interest rates, elevated inflation, geopolitical concerns, and heightened uncertainty indicate that transaction volumes are expected to fall in 2023, with three in five respondents expecting this.

The most significant proportion of this group predicts volumes to decline by 11-20%, which could mean that APAC volumes fall from USD 103 billion to USD 115 billion this year, the lowest level since 2010. However, one in three respondents are more optimistic, expecting volumes to rise in 2023, possibly due to the large decline last year and the slow start to the year.

However, the report expects that investment activity will pick up strongly in the second half of this year. “Nevertheless, uncertainty often creates opportunities,” the report emphasized.

Amidst the unpredictable global economic climate and central bank policies, investors are recalibrating their capital plans for 2023. While cautious in the short term, their long-term faith in the Asia Pacific region remains strong, according to Roddy Allan, Chief Research Officer, Asia Pacific, JLL.

Despite the expected decline in total capital deployed in 2023 due to pricing and interest rate uncertainties, longer-term optimism remains high, with investors polled saying central bank policy is prompting a pause rather than a retreat from investment activity.

“The coming months will require strategic adjustments in deployment strategies, but ultimately, investors are poised to accelerate their fund deployment later in the year,” Roddy was quoted as saying.

Respondents are rethinking their strategies and risk tolerance levels, with value-add strategies in greater focus for 64% of investors. Logistics, underpinned by robust occupier demand and rental growth, was identified as the asset class anticipated to see the largest net increase in capital and loan exposure this year, while investors also increasingly look at alternative asset classes such as multifamily and hotels.

When executing strategies, investors pinpointed direct investments and debt as the two most-favored methods to deploy capital in 2023, with 48% and 39% of respondents increasing their focus on such deals, respectively.

Investors will favor stable geographies such as Japan and Singapore, with 68% and 60% of respondents, respectively, expecting to increase their exposure to those markets in 2023.

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