The property market has been in a state of flux for some time now. Uncertainty and complexity are the two watchwords that investors globally are having to navigate.
Even with most economies forging a path towards endemic living with borders opening and with high levels of dry powder; aggressive rate tightening; supply chain disruptions and elevated energy prices are all but dampening investor confidence. So, what does this spell out for the real estate market today?
At the ‘Investing in a post-pandemic era' webinar moderated by Neil Brookes, Global Head of Capital Markets, our panel of speakers Victoria Ormond, CFA, Head of Capital Markets Research; Christine Li, Head of Research, Asia-Pacific; Paul Hart. Managing Director, Commercial Markets, Hong Kong; Ben Burston, Chief Economist, Australia, came together to address some of the most pressing questions shaping the investment landscape.
How are investors responding?
During the webinar, an informal poll was conducted to identify the top three themes that are influencing investment strategy.
While no one can predict the future, for now it seems that investors are increasingly positioning for resilience.
“Following more than two years of pandemic, there's been huge amounts of pent-up capital, as well as capital raising. This was reflected earlier this year, which saw a record first quarter for global commercial real estate activity driven by the emergence of domestic investors coming back into the market, as well as continued cross border activity," said Victoria Ormond, CFA, Head of Capital Markets Research.
"So, while headwinds and downside risks have increased in an environment, volatile equity and bond markets, the right sorts of real estate – which offers one or more of inflation, hedge properties, growth, potential diversification, benefits, income, and or relative stability – is expected to see strength and interest from investors looking to achieve these aims,” she added.
Office as an asset class investment
Offices, particularly well-leased prime assets, remain sought after by investors. In an environment where the economy remains relatively strong and where asset quality is key, investors will have a renewed focus on accessing rental growth and shorter lead opportunities.
“The APAC office sector has already bottomed out since the fourth quarter of 2021. So, we believe that return to Office is going into full swing right now. Well-leased office assets will appeal to defensive investors and high interest rates are likely to put a cap on the capital value gains. So, investors might want to turn to the stability of the income streams,” Christine Li, Head of Research, Knight Frank Asia-Pacific, commented.
So why do investors actually allocate so much capital into the office sector, particularly in the Asia Pacific region?
Neil Brookes, Global Head of Capital Markets, Knight Frank shared: “I think the geopolitical situation in Asia Pacific is interesting. I think it's moved some of the previously core markets into into markets where there's not as much demand as there was, and that's really pushing capsule towards towards Japan, towards Australia, towards Singapore, in a big way, and also towards Korea.”
The outlook for office assets remains positive today
The office space as an asset class investment can yield strong returns, that is if investors are careful about the fundamentals. One of most dependable and stable asset classes for investors over the past five years, it has a take-up rate of about 70% of all cross-border investments in Q2 of this year.
The bottom line is that interest rate rises will have a knock on impact on all sectors of the economy, and it's vital that investors who are building a portfolio of properties do the following:
- Have a good understanding of how the markets move and interpret how these signals will impact holdings
- Understand the signals in a variety of markets
- Be aware of opportunities that may come from rising interest rates
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For more insights from our webinar, click here to watch the on-demand replay.