Global Inflation causes concerns for the APAC Real Estate Sector

A Recent MSCI report has highlighted a significant decline in commercial real estate deals in the APAC region in Q3.
With analysts suggesting inflation being the cause of this slump, it is anticipated that this trend is unlikely to change any time soon.
However, there is optimism from some players in APAC’s real estate sector that it is in an advantageous position to mitigate some of the effects of these trends.

In its latest Capital Trends report the investment research firm MSCI Real Assets has reported that this year’s July-to-September period has shown a significant drop of just under 40 percent in the number of reported real estate deals made in the APAC region, marking this period as the worst quarter since 2012, with clear implications for real estate development recruitment.

Within the commercial space, trades of office properties are down 45 percent and the retail sector, when compared to the same quarter last year, has shown a decline of 54 percent. We have seen a similar trend for real estate development recruitment. However, trading of industrial properties has taken less of a hit, with a decline of 24 percent, but MSCI reasoned that this was due to JD.com’s acquisition of China Logistics Properties. Without the success of this deal, the firm highlighted that logistics investment would have seen its quietest quarter in five years.

Benjamin Chow, Head of Asia Real Assets Research at MSCI commented, saying:

“The rapid changes in the macroeconomic environment are now bearing down hard on the commercial real estate market and the slowdown has deepened in the third quarter. Not only is new dealmaking activity dwindling, but deals are also falling through, which is a negative signal for upcoming quarters.”

Property Developers and Market Players are yet to feel the squeeze

The report suggests that the number of deals taking place reflects global monetary authorities’ response to the current soar in inflation and increasing interest rates. According to real estate market analysts, it is suggested that this trend is likely to continue well into 2023, suggesting potential for a similarly sluggish trend in real estate development recruitment.

However, currently, there is limited evidence of falling real estate prices or distress in the APAC real estate market. For example, in the APAC region, regarding real estate development recruitment, we have yet to see an impact of rising interest rates. These factors are expected to have consequences, but not in all markets. Adrian Baker, Chief Investment Officer of APAC Direct Real Estate Strategies and President – APAC Real Estate Division at CBRE Investment Management, says:

“Most of the region is in price discovery phase at this point.”

Optimism for the Future of APAC Real Estate & Real Estate Development Recruitment

The PERE Asia roundtable agrees with the sentiment that a more difficult market is approaching. However, they have also stated that they are encouraged by Asia’s current situation when compared with the rest of the globe.

For example, interest rates have remained stable in Japan and we are seeing inflation having a greater impact on the Australian market than in China’s.

JD Lai, CIO, and CEO of M&G Real Estate Asia, mirrors this sentiment, highlighting that the Asia Pacific region is in a strong position to mitigate some of the effects of the widespread global inflation.

He points towards “long-term structural drivers underpinning” the region’s real estate market. He states that inflation will impact the APAC real estate market (and real estate development recruitment), risking real estate assets to be repriced.

Prospects for Growth and Anticipated Job Opportunities in Asia’s Real Estate

However, M&G Real Estate Asia is optimistic about opportunities for growth within developed APAC economies.

M&G Real Estate Asia’s CEO points out that relative to the rest of the world, inflation is lower in Asia. Identifying reasons such as: a lower trade exposure with Russia and Ukraine, the region’s supply chain with China and a trend of governing bodies exhibiting a more measured approach towards reopening markets post COVID.

Also, with the region’s growing middle class anticipated to contribute 50% of global GDP and 40% of the world’s consumption by 2040, JD Lai feels that this will be an important driver in supporting APAC’s real estate market. Another trend is that the region also contains some of the fastest developing cities. These two factors will have the anticipated effect of creating a need for housing, offices, shopping malls, and coordination facilities to support this growth, driven by a middle class with more excess capital to invest in the property market.

Another factor he mentions is an increasing shift towards digital industries in the region. With a growing number of technology companies requiring high specification buildings, coupled with a larger demand for prime office space (due to the lower impact of hybrid working in Asia), these will also help to prop up the real estate sector.

How will this impact roles in APAC Real Estate and Real Estate development recruitment as a whole?

All of this poses a hopeful view on the future of the APAC Real Estate market and real estate development recruitment, suggesting the potential for an increased need for talent and therefore growth in the number of job opportunities in the sector.

JD Lai supports this sentiment by saying that M&G Real Estate Asia believes cities such as Seoul, Tokyo, Yokohama, Singapore, and Sydney, who are in “transparent markets and driven by innovation,” will attract talent and are likely to outperform the expected trends caused by inflation.

Even in uncertain times, in locations where we see signs of economic growth, there will inevitably be a need for talent. As JD Lai mentions, markets driven by innovation will create new job opportunities, increase demand for real estate development recruitment and give rise to an increased possibility of moving talent into new roles.

Time will tell if the number of deals made in Real Estate will improve in 2023. However, we can be certain that the effects of inflation will be felt by many companies in this space, although there is a feeling of quiet optimism for the opportunities that might be found in APAC Real Estate’s future and the future of real estate development recruitment.

If you are a company considering hiring, we welcome the opportunity to present our services and capabilities. If you are a candidate, please check our jobs page or contact us to discuss your background, skills, and future aspirations. We always look forward to staying connected and exchanging ideas, insights, and opinions.

Sources

Ben Watt

Managing Director | Partner, Hong Kong

+852 6447 6750

ben@aurexgroup.com