Commercial real estate investment in the Asia-Pacific region declined by 27% year-on-year as a tightening interest rate cycle and global macroeconomic uncertainties influenced decision-making, according to a recent report.

Direct investment in Asia-Pacific commercial real estate totalled US$129 billion for the full-year 2022, according to data by global real estate consulting firm JLL, in line with its projections.

The fourth quarter saw a 41% year-on-year decline in activity across Asia-Pacific. However, the US$30.7 billion in capital deployed between October and December represented a quarter-on-quarter increase of 12%, reinforcing JLL’s conviction that the slowdown is likely to moderate in 2023.

“Investors reset short-term deployment strategies in 2022, but remain committed to the longer-term prospects of the Asia-Pacific real estate market,” says Stuart Crow, JLL’s CEO for capital markets in Asia-Pacific. “Price discovery will continue to be a major theme for investors in 2023 and is poised to influence deployment strategies for the first half of the year as bid-ask spreads tighten.

“Encouragingly, factors including the reopening of China, an expected recovery in Japan, and the belief that Asia-Pacific will be the least impacted region by any global economic slowdown, bodes well for a strong resumption of activity in the second half of 2023.”

Singapore, South Korea, hotels stand out

Singapore emerged as the region’s best-performing market in 2022 with total commercial real estate investments climbing by 53% year-on-year, JLL notes. Supported by robust first-half office market activity and a sizable one-off retail portfolio transaction in December, Singapore drew US$14.2 billion in direct investments. Hong Kong’s attractiveness improved following the relaxation of Covid-19 curbs. However, with full-year investments of US$7.7 billion, the market was down 24% year-on-year.

South Korea was the most active investment market in 2022 with US$26.2 billion in transactions despite posting an 11% year-on-year decline, JLL data reveal. China, driven by a pickup in fourth-quarter activity, attracted US$24.8 billion, down 37% year-on-year.

A solid rebound in the fourth quarter pushed volumes in Japan to US$24.7 billion for the year, down 40% on 2021. Australia, grappling with a disconnect between buyer and seller expectations, saw a decline of 38% year-on-year for a total of US$20.9 billion invested.

The hotel sector was Asia-Pacific’s best-performing asset class in 2022 compared with the prior year. Backed by the resumption of business travel and tourism, it attracted US$10.1 billion in capital, up 7% year-on-year.

Office, which remained the region’s most traded asset class, finished the year with US$60.5 billion in investments, down 18.7% year-on-year as investors became more selective as the bifurcation between core and secondary assets continued to play out. Logistics and industrial transactions declined 46% year-on-year with US$25.9 billion in capital deployed. Retail real estate volumes regionally were US$23 billion for 2022, a year-on-year decline of 39%.

“Green shoots in the fourth quarter ensured that the challenging investment market ended 2022 on a more optimistic note, snapping a year of volume declines,” notes Pamela Ambler, JLL’s head of investor intelligence for Asia-Pacific. “We expect the bright spots of strong fundamentals in select office markets, value-add retail, and cyclical and opportunistic buying in the region’s more mature markets to help drive deal flows in 2023.”