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ECONOMY


Asia Pacific Market Outlook Soundbites


Speakers:

Dr. Henry Chin, Global Head of Investor Thought Leadership, Head of Research, APAC

Ada Choi, CFA, Head of Occupier Research & Head of Data Intelligence and Management, APAC

Sam Xie, Head of Research, China


 


ASIA PACIFIC LEADS THE ECONOMIC REBOUND

 

After enduring a pandemic-led economic downturn for much of 2020, green shoots of recovery began to emerge across Asia Pacific in the second half of the year. Mainland China, Taiwan and Vietnam avoided falling into recession in 2020, while Australia, Japan, Hong Kong SAR and Singapore saw GDP growth resume in the July-September quarter. Asia Pacific is outperforming other regions, with full-year 2020 GDP expected to contract by 1.2% y-o-y, compared to a decline of 3.9% globally, according to CBRE’s January 2021 forecast.

The outlook for 2021 is positive, with CBRE projecting Asia Pacific full-year GDP growth of 6.6% y-o-y. However, much depends upon a potential resurgence in COVID-19 infections and the speed at which vaccination programmes are conducted around the region. Rather than a rapid “V-shaped” recovery, CBRE expects to see Asia Pacific register a “swoosh” shaped rebound featuring a gradual but steady return to pre-pandemic levels of economic activity.

 

RECOVERY EXPECTED TO BE UNEVEN

 

While projected GDP growth of 6.6% y-o-y for 2021 initially appears robust, this is partly due to a low base effect from 2020. CBRE’s base case scenario is for Asia Pacific GDP to return to Q4 2019 levels by the end of this year.

CBRE forecasts an uneven recovery across geographies and industries. By market, leaders in 2020 included Mainland China, which was able to contain the pandemic and restart economic activity within a relatively short timeframe.

Laggards included the Philippines and India, both of which experienced a significant recession in 2020. However, CBRE forecasts a significant uptick for the economic growth in these economies in 2021. Potential downside in these and other emerging markets centres upon the containment of the pandemic and the availability of vaccines.

While most markets in Asia Pacific are reporting lower caseloads, a recent uptick in infections in Indonesia, Malaysia and Japan may delay their recovery.

Figure 1
Figure 2

MAJOR INDUSTRIES REPORT POSITIVE REVENUE GROWTH

 

Companies in the technology and life sciences industries enjoyed strong revenue growth in 2020, while major office-based industries including banking and insurance have also proven resilient. While consumption-related sectors such as retail and automotive have been hit hardest by the pandemic, most are poised for a substantial rebound this year.

IMPLICATIONS FOR REAL ESTATE

Resilient office-based industries and a strong retail recovery will support leasing demand in 2021. The sustained growth of the technology and life sciences sectors is set to generate investor interest in business parks and laboratory facilities. Leasing demand will be strongest in Mainland China and India.

 

STRONG REBOUND IN PRIVATE CONSUMPTION

 

H2 2020 saw an increase in private consumption in Asia Pacific, fuelled by the accumulation of household savings during lockdowns. Most markets have seen retail sales improve on a monthly basis since Q3 2020.

Despite the formation of travel corridors between selected markets, such as the Australia-New Zealand bubble which is due to commence in Q1 2021, cross-border travel to and from many markets will remain subject to restrictions for most of the year. Markets reliant upon tourism will therefore experience a delayed recovery.

IMPLICATIONS FOR REAL ESTATE

While retail leasing demand contracted significantly in 2020, the second half of 2021 should see a steady recovery, led by Asian retailers and leading foreign brands. Mainland China will drive the recovery, while retailers are also optimistic for prospects in India, Vietnam and Taiwan.


Figure 3

CORPORATE INVESTMENT SET TO REMAIN CAUTIOUS

 

While office-based industries remain in healthy financial shape, the uneven economic recovery will deter most occupiers from committing to significant capital expenditure until H2 2021. Although CBRE’s latest Asia Pacific Flash Survey indicated that 49% of retailers intend to open new stores over the next 12 months, these plans will fall under the umbrella of portfolio optimisation, which will also involve the elimination of under-performing locations. In the logistics sector, investment in supply chain resilience will remain brisk.


IMPLICATIONS FOR REAL ESTATE

Occupiers will continue to seek opportunities to enhance corporate real estate portfolio agility but will retain a cautious approach to capital expenditure in H1 2021. Investment in logistics will remain upbeat. CBRE is guardedly optimistic towards prospects for retail investment, while the office demand recovery will be slower in mature markets than emerging ones.

 

LOWER INTEREST RATES FOR EVEN LONGER

 

The U.S. Federal Reserve intends to maintain the federal funds rate at near-zero until inflation has reached 2% and full employment is achieved: both of which are unlikely to occur in 2021. With the economic recovery only just underway, Asia Pacific’s central banks will keep interest rates low and maintain quantitative easing.

IMPLICATIONS FOR REAL ESTATE

The prolonged low interest rate era will enhance the appeal of commercial real estate investment compared to other interest-sensitive asset classes. Cap rates will remain low, with the logistics sector across most markets set to experience further yield compression.

 

THE END OF STIMULUS

 

The introduction of massive stimulus packages, including large subsidies to affected individuals and businesses, has somewhat cushioned the impact of measures to contain the pandemic. CBRE estimates that more than US$4.4 trillion – representing just under 15% of regional GDP – has been poured into the Asia Pacific economy in 2020. The impeding expiration of most of these schemes could expedite decisions related to redundancies and business closures, which would drag on a recovery in 2021. Nonetheless, governments are likely to maintain accommodative fiscal and monetary policy to support economic growth.

IMPLICATIONS FOR REAL ESTATE

The end of support measures such as rental holidays and abatements could negatively impact leasing demand in H1 2021. SMEs as well as small retail and F&B enterprises are more vulnerable.

Figure 4

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Asia Pacific Real Estate Market Outlook 2021

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Contacts

henry-chin-768x582-alt
Dr. Henry Chin
Global Head of Investor Thought Leadership
& Head of Research, APAC
Research
+852 2820 8160
+852 2810 0830
Ada Choi
Ada Choi, CFA
Head of Occupier Research, APAC
& Head of Data Intelligence and Management, APAC
+852 2820 2871
+852 2810 0830