Meanwhile, China’s central bank has been on an easing trajectory, with its latest decision in February cutting 25 basis points from banks’ five-year loan prime rate (LPR), the largest shave since the LPR was designated as the main rate benchmark in 2019.
“From the commercial real estate perspective, the appetite is quite a tale of two countries: foreign investors continue to look for opportunities in Japan but remain very silent when it comes to China,” said Henry Chin, global head of investor, thought leadership and head of research for Asia-Pacific at CBRE.
Flows of foreign money into commercial property reflect the shift from China to Japan.
In 2019, foreign investment in Chinese commercial real estate reached US$12.3 billion, almost double the US$6.2 billion invested in Japan, according to CBRE’s tracking of all transactions worth US$10 million or greater. By 2021, this gap had narrowed, with China getting US$10.1 billion and Japan US$6.5 billion. In 2022, the two countries received roughly equal foreign investment, US$8 billion for China and US$7.7 billion for Japan. Last year, the tables turned, with Japan taking in US$5 billion and China getting just US$3.2 billion.
China’s share of total foreign investment in property declined from 38 per cent in 2019 to just 8 per cent last year, while Japan’s has been relatively steady at 21 per cent in 2019 and 17 per cent in 2023, according to data cited by JLL.
“Foreign investor appetite could not be stronger for Japan at the moment,” said Pamela Ambler, head of investor intelligence for Asia-Pacific at JLL. “Despite the recent BOJ announcement, Japan is still the only market with accretive cash-on-cash returns. In fact, monetary policy may drive domestics to look overseas, opening up opportunities for foreign investors to enter the market.”
Japan slips to world’s fourth-largest economy, behind US, China and Germany
Japan slips to world’s fourth-largest economy, behind US, China and Germany
Hong Kong-based private equity fund Axe Management Partners is one investor making a major bet on Japan’s commercial property prospects. In March, it completed an acquisition of three hotels in Osaka for 10.7 billion yen (US$71 million).
Currently known as WBF Honmachi, WBF Kitasemba East and WBF Kitasemba West, the hotels have a total of 500 rooms. They are slated to relaunch in the last quarter of the year as part of Garner hotels, a brand under UK-headquartered IHG Hotels & Resorts. They will be the midscale brand’s first hotels outside North America.
“It’s very easy to see that this is an attractive market,” said Gary Kwok, founder and CEO at Axe Management. “In terms of the interest rates, it has a positive carry, and that obviously attracted a lot of the foreign capital looking for a positive yield. And in our view one of the key asset classes is hospitality.”
Axe Management, which has earmarked more than US$85 million for the acquisition and renovation, is aiming for a return of as much as 20 per cent on the investment, Kwok said.
Hong Kong, mainland China office-leasing outlook bleak, CBRE says
Hong Kong, mainland China office-leasing outlook bleak, CBRE says
As for China, opportunities are still present, especially with a number of distressed assets available in the market, said Sam Lau, Axe Management’s founder and managing partner.
“The market is very huge, and China is a place that we can never ignore,” he said. However, the company is being more selective about investments there, he added, looking into hotels, retail and student housing in first-tier cities but avoiding residential properties and offices.
Both Chin of CBRE and Ambler of JLL forecast continued strength in the Japanese commercial property market.
“Japan has strong fundamentals with its strong, stable and transparent economy,” Ambler said. “The yen is also depreciated against major currencies such as the US and Singapore dollars and has interest rate differentials to other countries, which leads to favoured lending terms and yield differences. There are also clear exits in Japan, and it is also a relatively more liquid market.”
Foreign investors, meanwhile, are likely to have a limited appetite for China for some time, Chin said.
China property: rate of decline in investment slows, official statistics show
China property: rate of decline in investment slows, official statistics show
“Japan and mainland China are in different cycles when it comes to commercial real estate,” he said. “We continue to see the growth in Japan while China is currently going through repricing with limited leasing demand.
“The Japanese economy continues to outperform, as the country has experienced real wage growth … However, the Chinese economy faces challenges while the unemployment rate continues to be on the high side.”
CBRE Holds Top Spot for Major Global Property Types
DALLAS, March 12, 2024–(BUSINESS WIRE)–CBRE was the top-ranked firm for global commercial real estate investment sales during 2023, according to MSCI Real Assets—the 13th consecutive year that CBRE has claimed the top spot.
MSCI Real Assets credited CBRE with a 24% market share across all property types on a global basis in 2023—an 800-basis point lead over the nearest competitor.
CBRE held the global top spot last year across the four largest asset classes—office (23% market share), industrial (29%), retail (22%) and multifamily (22%).
“CBRE Capital Markets facilitates considerable cross-border investment by leveraging our global platform and diverse sector expertise,” said Chris Ludeman, global president of Capital Markets for CBRE. “Through integrated, comprehensive services spanning assets and regions, we provide holistic real estate solutions for investors worldwide. As market dynamics evolve, our teams remain committed to providing practical guidance that helps investors to maximize value.”
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2023 revenue). The company has more than 130,000 employees (including Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com. We routinely post important information on our website, including corporate and investor presentations and financial information. We intend to use our website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included in the Investor Relations section of our website at https://ir.cbre.com. Accordingly, investors should monitor such portion of our website, in addition to following our press releases, Securities and Exchange Commission filings and public conference calls and webcasts.
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“Fast chargers are also likely to attract stronger demand near residential clusters, where users can charge their vehicles while grocery shopping,” according to the report.
Although the changes are unlikely to herald a big reset for the city’s property sector, providing EV chargers is one way to “future-proof buildings,” said Marcos Chan, head of research at CBRE Hong Kong.
The war for domination in the world’s No 1 electric car market
The war for domination in the world’s No 1 electric car market
Meanwhile, the largest automobile companies in the world such as Porsche, Volvo, BMW, Hyundai, Kia and Toyota are all forecasting that from this year EV sales will account for a significant portion of their sales.
In the cases of GM and Lexus, all new car sales will be EVs by 2035, according to data compiled by CBRE.
Demand has kept up with burgeoning supply. In 2022, for example, EVs accounted for more than half of the city’s private car sales, the highest proportion in Asia and the third-highest in the world for that year, according to CBRE.
Despite lion’s share of market, Chinese EV battery makers in image struggle
Despite lion’s share of market, Chinese EV battery makers in image struggle
“Despite being a small market, Hong Kong is home to many EVs, the number of which grew from 10,670 in 2018 to 70,409 in November 2023,” the report said.
The electric car industry is likely to usher in changes in the property sector that go beyond the need for chargers, CBRE said.
The city’s real estate will have to find ways to capitalise on the government’s push for Hong Kong as a location for EV technologies research and development. EV battery manufacturer CATL has agreed to establish an R&D hub and its international headquarters in Hong Kong.
Car battery manufacturers may also consider establishing value-add services in Hong Kong such as sales and marketing, boosting the need for office space.
The recycling and storage of EV batteries is also likely to spur demand for industrial and warehouse space, while car service centres may need to transform their premises to accommodate the needs of EV owners.
Investors are preparing for a record sell-off of Asia-Pacific real estate this year, which could see long-awaited price corrections in many office markets.
More than 40% of APAC investors will be net sellers of real estate this year, the highest proportion since records began in 2014, according to CBRE’s 2024 Asia Pacific Investor Intentions Survey.
The survey polled more than 510 investors across the region in November and December.
Much of the selling activity is likely to be concentrated on office assets, according to advisors and consultants.
“Uncertainties over office demand, given hybrid working arrangements, will continue to weigh on the office sector,” said Christine Li, head of research at Knight Frank Asia Pacific.
Christine Li
Knight Frank APAC
Li pointed to other structural headwinds for the sector this year: “The current global economic slowdown particularly with large scale technology and banking retrenchments could continue to weigh in the near term.”
“While industrial and office sectors remain popular among Asia Pacific investors, interest in these asset types has been declining since 2021,” said Henry Chin, global head of investor thought leadership and head of research, Asia Pacific for CBRE.
SUFFERING OFFICE SECTOR
“The return-to-work story is not playing out quite as was expected,” said Andrew Thompson, head of private equity, at KPMG Asia Pacific in Singapore.
He added that the reluctance of employees to return to the office five days a week has seen unanticipated shifts in how offices are located, designed and used, with employers seeking more efficient use of office assets, and a shift to temporary from fixed offices.
Henry Chin
CBRE
“The impact of an employee working from home is much more than a 20% cut in the real estate required [by the employer]. They are looking at their whole real estate offering,” he said.
“Agile working trends will continue to exert downward price pressure on offices, while ESG issues may render some older building obsolete in the future,” said Simon Smith, regional head, research and consultancy, Asia Pacific at Savills in Hong Kong.
“Office yield is quite low across the region: most markets have a negative yield carry. Industrial is rather fully priced and there is a limited supply of assets to trade. With lease terms typically between five and ten years, or even longer, it is not a good hedge against inflation in the current environment,” he added.
China faces further obstacles peculiar to its current development cycle and wider economy, said James Macdonald, head of research and consultancy at Savills China in Shanghai.
“[Waning interest in offices] in China is largely a result of overbuild over the last three-five years, and anaemic growth in demand, given the current economic prospects. Vacancy rates in many markets are at decade highs,” he said.
PRICE CUTS WILL BE KEY
If they act on their intentions, investor selling this year will break a long-standing stalemate, which has seen transactions in the APAC sector fall significantly, as owners of private assets refuse to drop prices and buyers continue to wait for repricing.
Andrew Thompson
KPMG
“The liquid REIT [real estate investment trust] markets fell between 25% and 30% [from their peaks in 2022] but owners of unlisted assets closed their eyes, pretending nothing had happened,” said Thompson.
Without the readiness to cut prices, however, investors’ avowed intention to sell is unlikely to come to anything.
The importance of price cuts is illustrated by the finding that, where investors are planning to buy this year, repricing is the most common reason.
In the CBRE survey, it was cited by 23% of those who intended to buy properties this year, ahead of the growing availability of distressed opportunities, reported as the second most common reason for a planned purchase, at 17%.
“The mismatch in pricing expectations between buyers and sellers remains a major concern for investors,” noted the CBRE report.
Li at Knight Frank contrasted the slow pace of re-pricing in APAC office markets to the retail sector, where quicker repricing saw the sector pick up last year.
-The share of investor flows into retail increased to 22% in 2023 from 17% of total spend in 2022, according to Knight Frank data.
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A North Avenue retail and medical office building is scheduled for auction next month, with experts expecting a dramatic drop-off in value from its $89M 2004 purchase price.
939 W. North Ave.
Sources close to the deal said they anticipate the North Avenue Collection at 939 W. North Ave. in the Clybourn Corridor district will sell for about $20M, or less than a quarter of the value Iowa-based Principal Financial Group paid for it two decades ago, Crain’s Chicago Business reports.
CBRE and auction house Ten-X will sell the property at an auction scheduled for Feb. 20-22. The opening bid is $5.5M, according to Crain’s.
The retail section of the building is largely vacant, with tenants renting out just 15% of the 95K SF. The other 104K SF, made up of medical office and fitness space, is 88% occupied. The property listing also includes a parking structure with 350 spots.
The overall vacancy rate in Clybourn Corridor was slightly less than 14% at the end of 2022, Crain’s reported. It is performing markedly better than other struggling shopping districts, like the Magnificent Mile and State Street, which both had vacancy rates closer to 30%.
The mixed-use property won’t be the first one sold this year. On Tuesday, Crain’s reported that a local investor bought a five-story office and retail building at 100-112 S. State St. for an undisclosed sum.
North American Real Estate bought the State Street building for less than the $35M the seller paid for it in 2015 and also owns the adjacent property at 114 S. State St., the outlet reported. Owning both properties allows the firm to control the corner and expand its footprint in the area, NARE principal Savas Er told Crain’s.