There is growing optimism that new opportunities are beginning to emerge in the global real estate market, with signs that Asia in particular will benefit from its robust growth story.
This outlook is based on the latest report from Hines, the global real estate investment, development and property management firm, entitled “Opportunistic Patience Prevails”.
“To date, real estate performance is in line with our predictions for 2023,” said Josh Scoville, the firm’s head of global research. “With housing starts increasingly slowing, the lack of new supply will be a key contributor to the eventual recovery, potentially leading to strong rental growth once demand inevitably improves.”
Furthermore, he added, as the confluence of improved fundamentals and increased liquidity approaches, Hines expects investors’ patience to be rewarded with a number of lucrative new global opportunities.
Asia: a region to watch
Despite China’s slowdown, Asia’s growth is expected to outperform the world as domestic central banks remain vigilant.
Coupled with inflation coming under control in the region, the consensus view is for policy rates to ease in 2024 and 2025, according to Hines’ research, although the sovereign yield curve suggests that long rates in the region could remain elevated or even rise over the next five years.
“Markets with rising cap rates are experiencing relatively healthy rental growth, and sectors such as retail and office are showing signs of improving fundamentals and stabilisation, respectively,” said David Steinbach, Hines’ global chief investment officer.
His view is supported by the lack of any real signs of stress in Asian labour markets. In addition, increased tourism and migration are likely to at least partially offset the current weakness in the Chinese economy.
“A resumption of active property transactions is one of the first signs that sellers have capitulated to adjusted valuations,” says Steinbach. “In Asia, total volume was down 40% year-on-year, but office volume was stable in the second quarter, and industrial and retail recorded gains of 22.4% and 15.9% respectively.”
Macro trends driving global demand
Beyond Asia, Hines also identifies four themes that are reshaping the economic, social and real estate landscape: deleveraging, deglobalisation, decarbonisation and demographics.
“Our research points to two key signals to watch in the current environment – an increase in global transactions and a link between shifts in bank lending norms and real estate performance,” says Steinbach.
According to Hines’ observations, the European real estate market appears to be further along in its transition, with a notable decrease in tightening compared to the US, where the second quarter was the third consecutive three-month period in which more than 60% of banks surveyed tightened underwriting standards for CRE loans.
Combined with emerging macro trends and economic and geopolitical forces, it is changing investment strategies and priorities. “It is also a catalyst for meaningful long-term change, often leading to new sources of demand, revenue and opportunity,” Steinbach added.
