The Asia Pacific region’s key real estate markets are likely to witness a sustainable and resilient recovery in the next three years, bouncing back from recent weakness triggered by the spread of COVID-19, according to the inaugural ULI Real Estate Economic Forecast report for the region.

China is forecast to lead the pack with 8.75 percent growth in its real gross domestic product (GDP) in 2021, followed by Singapore (6.1 percent), Hong Kong (4.7 percent), and Japan (3.0 percent). While economies in the region are expected to grow at a slightly slower pace in 2022 and 2023, signs of continuing recovery remain as unemployment rates are expected to continue trending downward across the four key markets surveyed—Hong Kong, Shanghai, Singapore, and Tokyo.

Against this upbeat backdrop, real estate in the four cities is likely to experience a rebound as well, with bright spots in the office and logistics spaces. Although office vacancy rates are expected to expand at a slightly slower rate for the next three years, according to an office MSCI index, the office sectors in Singapore and Tokyo are estimated to return 3.59 percent and 3.1 percent, respectively, before accelerating to 8.63 percent and 4.3 percent in 2023. A rapid shift toward e-commerce also continues to support demand for logistics assets, with rental rates estimated to rise 2.75 percent in Hong Kong in 2022, the highest of the four key markets surveyed. The outlook for the retail sector remains downbeat this year, with rental rates projected to decline in Singapore and Shanghai as well as Hong Kong.

At the onset of the pandemic in 2020, substantial declines were seen in the inflation rates of the four markets studied, with Hong Kong and Japan dipping into negative territory. This trend is set to be reversed in 2021. Medium-term inflation rates are projected to remain stable and subdued, rising very gradually from 2.0 percent, 1.55 percent, 1.4 percent, and 0 percent in 2021 to 2.05 percent, 2.5 percent, 2.0 percent, and 0.55 percent in 2023 in Hong Kong, China, Singapore, and Japan, respectively.

“The latest ULI Real Estate Economic Forecast paints a bright outlook for the key economies and real estate markets in Asia Pacific, signaling the region’s resilience to the challenges posed by the pandemic,” says David Faulkner, president of ULI Asia Pacific. “Even so, pockets of uncertainties remain as recovery would depend on the pace of the reopening of the global economy, as well as the reemergence of the virus, which may lead to another round of lockdowns.”

The forecast’s findings are based on a survey of economists and analysts at eight leading real estate and investment organizations, Aberdeen Standard Investments, AEW, Cushman and Wakefield, Heitman, JLL, Morgan Stanley, Nuveen Real Estate, and Phoenix Property Investors. It is also based on historic 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 Asia Pacific’s four major markets.

Other projections from the forecast include:

  • Hong Kong: Office rental rates are projected to slide 8 percent this year before returning to growth territory in 2023. The availability of logistics assets in the city remains low, driving rental rates upward to expected increases of 2.75 percent in 2022 and 2.25 percent in 2023. Similar to those for other major cities in the region, rental rates for retail assets are estimated to decline by 10 percent this year, the steepest in the four markets surveyed, and will likely only bounce back in 2023.
  • Shanghai: In contrast with declines in Hong Kong and Singapore, the office vacancy rate in Shanghai is expected to rise steadily for the next three years, in line with the increase in rental rates. The city’s logistics market is forecast to remain resilient throughout the year as well, with rental rates recording healthy increases of 1.75 percent, 2.25 percent, and 2.75 percent in 2021, 2022, and 2023, respectively.
  • Singapore: The rise in the office vacancy rate is expected to slow slightly between 2021 and 2023, with office rental rates recovering from 2022 onward. The logistics space remains popular, with fewer assets estimated to be available throughout these years, driving rental rates upward beginning in 2022. Retail assets continue to face challenges, with rental rates expected to decline 7 percent this year before recording a slight recovery to a 1.75 percent increase in 2022 and a 4.8 percent jump in 2023.
  • Tokyo: The office vacancy rate is expected to hit a high of 3.75 percent in 2023, up from a low of 0.57 percent in 2019. Rental rates will stay weak, with a 5.9 percent decline in 2021 and a flat growth in 2022. The rental rate for logistics assets will likely remain steady this year and the next, before slowing slightly in 2023.

A recording of the forecast webinar will be available in Knowledge Finder.