Asia Pacific Office Markets To See Price Correction
ASIA PACIFIC – Experts revealed that the region’s office market may witness its “1st meaningful price correction” since the 2008 Global Financial Crisis in the coming months, providing opportunities for commercial property investors with cash on hand, reported Mingtiandi on Thursday evening (17 November, SGT).
“We do identify cracks here and there over the last 6-12 months and we expect these cracks to become more apparent and probably more cracks are to be found in the different markets over the next 12-18 months,” said Thomas Au Managing Director and Asia Pacific investment strategist at Invesco Real Estate.
These cracks, in the form of price drops or lower financing costs, are likely to be more apparent after the first few months of 2023, stated the panellists at MTD TV’s Value-Add and Opportunistic Office Strategies panel during Mingtiandi’s Asia Office Strategies Forum.
However, the price corrections are unlikely to happen soon as it would take time for transacted prices of office properties, which has been holding up recently, to catch up with the fall in property valuations.
“We’re in this slightly grey period where the gap between buyers and sellers is still quite wide – everybody knows the – the sellers are going to have to move their expectations,” explained David Green-Morgan, head of real assets research at MSCI.
“This is when it all depends on some other factors – holding power, how much price growth we’ve seen over the last few years, refinancings, as well as the overall economic picture – then you start to bring a bit more liquidity back into the market as buyers and sellers move closer together.”
Moreover, the panellists agree that the timing of when office transaction activity would recover differs across markets in the Asia Pacific region. For instance, the office sector of Greater China is expected to slowly pick up by 2023 as borders reopen.
“I think the Hong Kong market [will] pick up slowly and favourably… [but] I think we have to be careful with the huge supply coming up in the next three-four years that will lower our rental growth prospects,” said Cushman & Wakefield’s International Director and Head of capital markets for Greater China, Francis Li.
He thinks the window of opportunity to acquire heavily discounted office properties in mainland China will likely stay open for another 6 to 12 months, as developers continue to divest office assets to pay off debts.
“This is a good opportunity honestly, for those who haven’t had a stake in the market in Hong Kong and China,” Li added.
While markets like Singapore and Sydney are already seeing steady growth in grade A office rent, according to Cushman’s figures, falling office office rents in Hong Kong and Shanghai may be the latest sign that asset values need to fall for investment opportunities to provide enticing yields to investors.