Hong Kong, Singapore, and Japan are expected to recover swiftly from pandemic shocks over the next three years, according to ULI Real Estate Economic Forecast for the Asia Pacific region covering 2021 to 2023.
Hong Kong is witnessing the strongest economic recovery out of the markets covered by the forecast. GDP is estimated to grow 6.85 percent this year, reversing from a 3.04 percent contraction in both 2019 and 2020, and well above its 10-year average of 1.5 percent. Singapore and Tokyo return to growth trajectory in 2021, with expectation for positive figures at 6.5 percent and 2.15 percent respectively. China overall is still leading in the region with 8.15 percent GDP growth this year. The encouraging economic outlook for Asia Pacific continues to 2022 and 2023, with the major markets forecasted to record sustained and robust expansions, albeit at a slightly slower pace compared to this year.
Substantial declines in inflation rates that were seen at the height of the pandemic in 2020 have largely been reversed in 2021, with the four markets of Hong Kong, Singapore, China overall, and Japan overall measuring 2 percent, 1.85 percent, 1.05 percent, and -0.05 percent respectively. Inflation rates are projected to normalize and return to around 10-year average levels in the following two years at 2.55 percent and 2 percent, 1.5 percent and 1.45 percent, 2.4 percent and 2.5 percent, and 0.45 percent and 0.4 percent in the same order of markets.
Real estate in the four key markets is likely to experience an upbeat outlook as well, in tandem with bright economic prospects. The office occupancy rate in Singapore is likely to grow slightly in 2022 and 2023, bucking the trend seen in Hong Kong, Shanghai, and Tokyo, with rentals expected to increase 4.6 percent and 5.0 percent in the next two years. The city-state is leading the way within the office space, with a forecasted 9.65 percent increase in returns for 2022 before falling back to a more moderate 6.75 percent in the year after. Hong Kong and Tokyo will only see a strong rebound in returns in 2023 at 5.4 percent and 6.28 percent respectively after moderate gains in 2022.
Meanwhile, a structural undersupply of high-quality assets in conjunction with strong demand on the back of the rapid growth in e-commerce continue to underpin the logistics sector. While capitalization rates have slightly fallen across all four markets studied, they remain robust this year at 3.46 percent, 6.15 percent, 5 percent and 3.5 percent for Hong Kong, Singapore, Shanghai, and Tokyo respectively. While the retail sector is expected to clock another huge contraction this year–with the exception of Shanghai–as the pandemic is contained, social distancing regulations eased, and travel restrictions loosened, it is expected to recover gradually in the next two years with rental rate growths reaching 2.5 percent, 1.5 percent and 2.25 percent in 2023 respectively in Hong Kong, Singapore, and Shanghai.
David Faulkner, president of ULI Asia Pacific, said: “The Asia Pacific real estate industry is well primed for a resurgence in 2022 and we believe it will gather further momentum in 2023. This is demonstrated by strong economic prospects supported by a likely resumption of cross-border business activities amid a more widespread re-opening of borders. While a re-emergence of the virus and further rounds of lockdowns are certainly still possible, the industry has become more resilient than ever–having adapted properties to take into account social distancing requirements, health concerns, remote working and more.”
The semi-annual ULI Real Estate Economic Forecast’s findings are based on a survey of economists and analysts at seven leading real estate and investment organizations, including AEW, Cushman & Wakefield, Heitman, JLL, Nuveen Real Estate and Phoenix Property Investors. It is also based on historical data provided by JLL, MSCI, and Oxford Economics. The report takes a deep dive into the three-year forecast for key economic and real estate data points for four major regional markets: Hong Kong, Singapore, China, and Japan.