Knight Frank’s highly anticipated New Horizon Outlook 2024 report unveils optimistic forecasts for the landscape of Asia-Pacific real estate, encompassing predictions for the commercial, residential, and capital markets, including emerging trends, opportunities, and challenges.
The report projects a remarkable 43.7% increase in Asia-Pacific logistics supply in 2024, offering a respite from the tight supply conditions that have characterised the region. Despite this surge, average rent is expected to maintain an upward trend, furthermore, at a more moderate pace, owing to resilient demand.
The report attributes the increased interest from homebuyers to favourable dynamics around homeownership, stable mortgage rates, and rising property prices. Homebuyers are increasingly investing in India due to the favourable dynamics around the enhanced need for homeownership, stable mortgage rates and increasing property prices.
India Outlook
- Residential, office and warehousing market to remain buoyant in 2024.
- Mumbai is expecting a 5.5% increase in prime residential prices in 2024, driven by high demand and strong economic growth.
- Decentralisation of supply chains and manufacturing focus of the Government to aid the warehousing market.
- India along with China to lead Grade-A office supply in the APAC region in 2024. Together it will constitute almost two-third of the expected 10 million sqm (108 mn sqft) of office supply.
Shishir Baijal, chairman and MD, Knight Frank India said, “The residential sector exhibits substantial growth potential, underscored by sustained demand over the past few years, complemented by consistently stable interest rates and robust GDP expansion. Notably, there is a pronounced demand for mid- and high-priced residential properties. The resilience of the Indian economy has also catalysed the recovery of the office sector, which is steadily rebounding from its pandemic-induced downturn.”
“Fuelled by the robust demand from India-facing businesses and Global Capability Centres (GCC), we anticipate office leasing to surpass last year’s trend. Looking ahead, we envisage a continued upward trajectory for both the residential and office sectors, well-supported by ongoing GDP growth,” Baijal added.
APAC
For the broader economy, growth across over two-thirds of the region’s major economies is expected to remain stable or to accelerate in 2024.
A spotlight on megatrends that power real estate fundamentals in the Asia Pacific Region
Megatrend 1: Continued urbanisation
The region’s demographic challenges are well-known. A declining number of marriages and the resultant fall in birth rates – a consequence of rapid economic progress – will see population growth slow through the decades ahead. However, its urban population will continue to grow, fuelled by the ongoing trend of rural-to-urban migration.
Megatrend 2: Magnet for foreign investment
Foreign direct investment (FDI) inflows from UNCTAD show a tectonic shift in investments towards Asia-Pacific following the pandemic. While inward FDI fell by 12.4% globally in 2022, those into the region have bucked the trend to rise by close to 8%. The region accounted for 55% of global inward FDI in 2022.
Megatrend 3: More than half of Asia-Pacific will be middle-class by 2024
According to World Data Lab, of the 113 million that will join the ranks of the global middle class, over 80% will be in Asia-Pacific. This development represents a historic turning point, as the proportion of the region’s population living below the poverty line is poised to fall below 50% for the first time.
Megatrend 4: Largest working-age population
Paired with conducive policies, the young, fast-growing labour pools in South Asia and most parts of Southeast Asia are expected to fuel the region’s competitive advantage continually. By 2025, about 68% of the population in the ASEAN region will be of working age. Unlike more mature countries, the region’s working population surpasses its older dependents, spurring economic expansion, generous consumer and investment spending, and wealth accumulation.
Sector Outlook – APAC Region
Residential
The region is expected to return to mid-single-digit growth in 2024 as sentiments recover, and investor confidence is restored.
The slower-than-expected Chinese economic recovery has dampened market sentiment in the Chinese mainland and Hong Kong SAR. These markets have a mixed outlook but with potential value-buy opportunities.
The property market in South-East Asia is expected to remain stable in 2024. Manila is the most robust residential market, projecting a 5.9% growth in 2024, supported by strong employment growth in fintech and startups. In Singapore, investors remain on the sidelines after prices reached historic highs amid a subdued economic outlook.
The bright spots emerged in Australia, New Zealand, and India. In Australia and New Zealand, immigration and limited supply have helped to reverse the sentiments arising from higher mortgage rates. Auckland and Sydney are both poised for a further 5% growth in prices in 2024. Homebuyers are increasingly investing in India due to the favourable dynamics around the enhanced need for homeownership, stable mortgage rates and increasing property prices.
Capital Markets
Private capital remains a driving force in Asia-Pacific commercial real estate.
Amidst times of crisis, opportunities persist, enabling investors to access favourable assets that offer capital appreciation and positive rental reversions. Thematic sectors such as living spaces, life sciences, and data centres present promising prospects.
With substantial deals in the pipeline, the total Asia-Pacific multi-family investment volume for the year is set to surpass the previous high in 2020, with domestic activities dominating the scene.
Chinese mainland to be an up and coming living sectors market. Although the sector is still in its formative stage, it holds significant growth opportunities owing to its vast population of 1.4 billion and the challenges that families and young professionals face when purchasing apartments.
Office
Emphasis on newer and ESG-certified buildings
Most occupiers in Asia-Pacific have adopted an ‘office-first hybrid’ strategy. In view of this new workplace equilibrium, the demand-supply dynamic in Asia-Pacific is in the best position to support occupiers.
Prominent emergence of a two-speed market with a bifurcation in the Asia-Pacific office sector, with occupiers with some financial capabilities taking advantage of the softening leasing market to relocate to newer and ESG-compliant buildings. On the other hand, occupiers are being financially prudent towards portfolio planning amidst the prevailing headwinds.
Overall, the market conditions for the Asia-Pacific prime office sector will continue to favour tenants in 2024, with the vacancy rate to trend upwards to 14.4% – 18.3% from the current 13.9%.
While the trends of ‘flight-to-quality’ and ‘flight-to-green’ persist, the enthusiasm for expansion will be restrained.
Logistics
While economic headwinds have induced caution in logistics occupier markets, prime logistics spaces remained supported by resilient demand. There remains strong competition for industrial development land, particularly in strategic locations close to major cities.
With the pandemic in the rearview, e-commerce demand growth has waned. However, disruptions from geopolitical tensions, lingering concerns from the pandemic and environmental themes are redefining the region’s logistics footprint, which can continue to fuel occupier demand.
Optimisation of the sector’s logistics footprint has driven demand for modern facilities. Preference for institutional-grade facilities in core areas and last-mile locations continued to fuel leasing activity in the region, while China+1 strategies also saw ongoing expansions by major manufacturers in SEA.
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