Savills Projects Higher Investment Volumes in Asia Pacific in 2024, Japan at Forefront Of Any Recovery

With an estimated US$761bn* sitting in global closed-ended funds at the start of the year ready for deployment into real estate, Savills forecasts investment volumes to rise in 2024. In Asia Pacific, Savills expects higher investment volumes, although the region’s comparative resilience over the last 12 months will imply only modest growth compared to the other regions which are coming off a lower base.

With price pressures dissipating faster than many expected, and economic growth looking to be relatively resilient to many headwinds, central banks should start easing rates around the middle of the year. This will increase the pool of buyers and sellers and underpin a recovery in commercial real estate (CRE) markets, with the ‘fear of missing out’ factor providing an impetus for investors to buy sooner rather than later.

“As in any cycle, the greatest returns are made by investors who buy closest to the market nadir, so any evidence of a fledgling recovery will bring investors quickly in from the cold, looking for a first-mover advantage, comments Oliver Salmon, Savills World Research Director, Global Capital Markets.

“Much of the optimism we’re seeing is based on expectations of lower rates. As these expectations come to fruition the FOMO dynamic will be reinforced, both via a lower cost of borrowing and via pricing, by boosting the premium of real estate to the prevailing ‘risk-free’ return and so negating any perceived need for prices to adjust further, closing the valuation gap between public and private markets.”

Japan will be at the forefront of any recovery, followed by those markets where interest rate pressures have been most acute, with China lagging the rest of the region. Some long-haul capital will return as a recovery in the global economy encourages greater risk-taking behaviour. However, capital inflows from outside of Asia Pacific into the region fell by more than 54% in 2023 to a 13-year low: a 9% share of 2023’s market compared to 20% in 2019.

Capital markets in the region are also increasingly becoming a regional affair. Intra-regional cross border investment fell just 13% in 2023 with investors from Japan and Singapore being increasingly active, as well as Mainland Chinese investors.

Key targets of this regional capital this year is the retail sector in Singapore and Hong Kong. Around the Asia Pacific, likely target sectors include logistics, multifamily, student accommodation and senior housing in Australia; offices and logistics in South Korea; and offices in India.

Jeremy Lake, Managing Director, Investment Sales & Capital Markets at Savills Singapore says, “Having spoken recently to many institutional investors, it is evident that some markets and some asset classes are more sought after than others for these buyers. Japan, Korea, Australia and Singapore are the top four markets. In Singapore, the most popular asset classes are hospitality/co-living, logistics, retail and office in that order. There are also some other popular niche asset classes like data centres and self-storage, but these assets are rarely for sale in Singapore.

Investment activity from the non-institutional investors will remain strong in 2024 albeit there has been a slight slowdown since the money laundering arrests mid last year. Even if a few Chinese investors have left the market, the pool of investors remaining is large with wealthy investors, from Indonesia and Malaysia, and Hong Kong in particular, being long term investors here. In fact, there has even been a trickle of wealthy investors from Europe and Taiwan investing and or looking to invest, in Singapore. Favourite asset classes are shop houses, strata offices and smaller en bloc commercial buildings and hotels.”