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Global Cities

Think Asia Pacific cities 2020 outlook

Harry Tan
Head of Research, Real Estate, Asia Pacific
Think Asia Pacific Cities Q1 2020 outlook_Hero
The outlook heading into 2020 Asia Pacific's is showing clearer signs of improvement after the significant headwinds for Asia-Pacific’s growth landscape in 2019 – particularly from the United States-China trade tensions which softened global business sentiment and trade. Growth momentum is likely to strengthen visibly across the region in the second half on 2020. The exception is Hong Kong, where the months-long protests will likely continue to drag on domestic sentiment and demand. 

Monetary policy loosening will be the key driver of the improving outlook. Most central banks in the region lowered interest rates in the last few months of 2019. While Japan did not cut rates, forecasts indicate the policy rate is likely to drop to -0.3% early 2020, from the current -0.1%. Similarly in Australia, even as the Reserve Bank kept rates steady at 0.75% in October 2019, expectations are for another cut of between 25-50 in 2020.  

This sustained period of lower-for-longer interest rates will help to engineer a more robust macroeconomic recovery across the region in 2020. These supportive financial conditions should turn continue to drive increasing investor interest and flow into the real estate market, especially from income-focused investors. 

Compare with 2018, transaction volumes declines in 2019, partly as a result of the more uneven growth environment and tight pricing, but also due to the limited investability of quality stock. This trend is likely to persist,  particularly as the bid-ask spread will likely to stay wide, even with strong investor interest driven by low rates (and wide yield spread), diversification requirements and substantial untapped equity still waiting to be deployed into regional markets. At the extended point of the cycle, where local market fundamentals are likely to detach from pricing across some markets, investing into resilience, durability and structural megatrends should have a role in long-term portfolios seeking attractive risk-adjusted returns.

 

Office sector overview 
  • Leasing activities fell with vacancy creeping up and rental growth softening.
  • De-escalation of trade tension will reduce business uncertainties in the medium term.
  • Outlook to improve in 2020 as sentiment picks up.

Retail sector overview 
  • Performance of retail sector has been patchy across the region.
  • Luxury retailers posted strong sales in the region; relocation/expansion demand resumed although highly selective of locations.

Logistics sector overview 
  • Logistic demand supported rental growth and low vacancy rates.
  • Trade and manufacturing sectors' growth continues to be weighed by trade disputes.


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