Sustained Asia Pacific Recovery in 2022, According to ULI Real Estate Economic Forecast

Japan and Australia are expected to enjoy an upbeat economic outlook in 2022 with faster growth rates compared to Hong Kong SAR, China Mainland, Singapore, and South Korea, according to the Urban Land Institute (ULI) Real Estate Economic Forecast for the Asia Pacific region covering 2022 to 2024.

Australia is projected to lead the pack this year with the strongest economic growth out of the six markets covered by the Forecast. GDP is likely to expand 4.48% in 2022, well above the long-term average of 2.35%. Elsewhere in Japan, the economy is forecast to grow five times faster this year at 2.25% from 0.45% in 2021. Following a strong recovery in 2021, Hong Kong SAR, Singapore, China Mainland and South Korea remain resilient this year. Even so, these markets are expected to record slower growth rates 1.00%, 3.35%, 4.85%, and 2.0% respectively.

Expectations of faster inflation in the region temper upbeat sentiment on Asia Pacific’s outlook. Inflation rates in four out of the six markets surveyed, with the exception of Singapore and South Korea, are estimated to accelerate in 2022 before trending lower to their long-term average by 2024. In tandem with strong economic growth, Australia is likely to see inflation jump to 4.50% in 2022, from 3.58% just a year ago. While Hong Kong’s inflation rate is expected to rise to 2.6%, it will remain below its 11-year average of 2.81%. China Mainland, and Japan are projected to record the following inflation rates in 2022: 2.30% and 1.65% respectively.

David Faulkner, President of ULI Asia Pacific, said: “We believe Asia Pacific will continue to be on an upward trajectory between this year and 2024, pointing towards a sustainable recovery following the pandemic. Even so, short-term tailwinds remain, as inflation rates in the region’s largest economies are projected to accelerate rapidly. Against this backdrop, we are expecting the real estate sector to remain resilient in the next few years, with largely stable capitalisation rates across the office, logistics, and retail segments.”

Tokyo is expected to witness a positive market outlook with office capitalisation rate of 2.60% this year, the lowest in the region. The rate will likely to dip to just 2.30% by 2024, reflecting continued robust demand for office assets domestically. Conversely, Shanghai’s and Sydney’s office sectors are expected to witness 4.53% and 4.40% of office capitalisation rates respectively this year. The rates will likely peak at 4.60% and 4.50% two years later, leaving some room for investment potential.

Singapore’s logistics segment is the most attractive among the six key markets surveyed, with the highest estimated capitalisation rate of 6.4% this year. While Hong Kong SAR is expected to witness a slight fall in its logistics capitalisation rate to 3.40% in 2024 (2022E: 3.55%), Shanghai is moving towards the other direction with a projected rise to 5.10% in two years’ time. The rates for Tokyo, Seoul, and Sydney are likely to remain stable between 2022 and 2024.

Seoul’s and Sydney’s retail sectors are expected to slightly improve between 2022 and 2024 with retail capitalisation rates compressing to 4.20% and 4.33% in 2024 (2022E:4.30% and 4.38%) respectively. Impacted by mobility restrictions, Shanghai’s retail capitalisation rate is expected to peak in 2023 at 4.88%, the highest in five years.

The semi-annual ULI Real Estate Economic Forecast’s findings are based on a forecast survey from economists and analysts at ten leading real estate organisations, including Aberdeen Standard Investments, AEW, Colliers, Cushman & Wakefield, Heitman, JLL, Oxford Economics, Nuveen Real Estate, Phoenix Property Investors and Schroders Capital. It is also based on historical data provided by JLL and Oxford Economics. The report takes a deep dive into the three-year forecast for key economic and real estate data points for six major regional markets: Hong Kong SAR, Singapore, Shanghai, Tokyo, Seoul, and Sydney, as well as additional indicators for China, Japan, South Korea and Australia.

The ULI Real Estate Economic Forecast, Asia Pacific is available online at https: //asia.uli.org/real-estate-economic-forecast/.