PETALING JAYA (Jan 18): In CBRE’s webinar on “CBRE 2022 Asia Pacific Market Outlook” held on Tuesday (Jan 18), CBRE Asia head of retail, advisory and transaction services Vivek Kaul, CBRE Asia Pacific head of capital markets Greg Hyland, CBRE Asia head of supply chain advisory Troy Shortell and CBRE Asia Pacific managing director of advisory and transaction services Paul Hubbard-Brown concurred that the growth of majority of the economies will return to pre-Covid-19 levels, and the Asia-Pacific (APAC), in particular, is anticipated to see healthy economic growth in the commercial real estate industry in 2022.
The webinar was hosted by CBRE Asia Pacific global head of investor thought leadership and head of research Henry Chin and CBRE Asia Pacific head of occupier research and head of data intelligence and management Ada Choi.
According to Kaul, the rental index for the logistics and office sectors remained relatively resilient over the past 24 months. Though the retail sector has underperformed over the same period, the retail rents are expected to stabilise going forward.
He remained optimistic about retail rental recovery in 2022. “This is because we are already doing our business amid uncertainty or in the situation of flux for the last two years, and as such, developers and retailers in the region have already developed SOPs which are functioning quite well and their reaction time to adapt to any new norm is much faster and easier. Also, most of the markets in APAC are still under travel restrictions, so the growth or the stabilisation of sales that were seen over the last few quarters was driven by strong domestic consumption."
Markets like China, Japan, Australia, South Korea and India will remain the most active in the region as a result of strong domestic demand sectors like luxury athleisure wear, home improvement, and food and beverage (F&B). Kaul pointed out that the F&B business keeps bouncing back strongly every time dining restrictions have been removed. Automobile manufacturers have also been wanting to take prime real estate in the markets as the world is looking for a cleaner and greener future.
Luxury and premium retailers still prefer to be in key high streets and prime malls in the city. They are also creating experiences that cannot be done online and taking advantage of the softening of rentals. “Having said that, the affordable retailers want to be near residential catchments as the suburban retail developments are performing extremely well. In some cases, the rental value in these locations is inching closer to the prime central business district retail rents. For F&B operators, the demand is mainly driven by gradual casual dining quick service restaurants, which want to open outlets closer to the residential catchment, whether it is via cloud kitchens, drive-through restaurants or by creating dedicated outlets for databases,” said Kaul.
Landlords in high streets have been way more flexible in reducing rents compared with institutional developers. This is where developers nowadays are keen to partner with retailers by subsidising the franchise cost and in some cases, taking a master franchise of a brand for a particular region. Kaul said the most exciting aspect is the pace of adaptation of technology among the developer community, by having tools to constantly engage with customers, grouping deals for brands within the shopping centre as well as offering vacant spaces for new domestic Instagrammable brands. This will create new experiences in the malls and ultimately attract shoppers back to the retail development.
Hyland also observed increased interest in the retail sector on a selective basis. “We have seen a number of larger deals that were concluded in Australia in 2H2021 (second half of 2021) and other markets across APAC. Therefore, there will be increasing appetite from investors, particularly when they are looking at the yield spread between some of the other asset classes that have had substantial yield compression over the last period, which they are looking into the sort of relative value that the retail offers.”
Meanwhile, the industrial and logistics sector continues to be the preferred asset class for people to invest in in 2022. Shortell observed continuous occupier demand for the foreseeable future and two key demand drivers will be professional third-party logistics companies (3PLs) and e-commerce marketplaces. The 3PLs are interested in continuing to build out their networks going deeper into countries or sealing up regional connectivity as well as deploying for new client build outs.
“There are also e-commerce marketplaces that require physical infrastructure, which they have been busy in setting up distribution centres, large national centres/formats measuring about 20,000 sq m or bigger, as well as fulfilment centres that are on the periphery of the largest urban clusters around APAC. They are now in the early innings of figuring out how to optimise for the urban fulfilment networks that will carry them and their growth in the future,” said Shortell.
Consequently, the 3PLs will have continuous demand and outsourcing will continue across most markets in the region that requires professional 3PL support and the supply chain, particularly with the constraints around execution and the need for people in the industry.
Shortell opined that occupiers will continue to review industrial real estate portfolios to enhance supply chain resilience. The coming year will see occupiers focus on securing warehouse space near end-consumption points to improve operational efficiency and mitigate disruption. Meanwhile, the regionalisation of supply chains will benefit alternative manufacturing hubs such as growing industrial areas in Vietnam, Indonesia, Philippines and India, along with established mega industrial zones in mainland China, Japan and South Korea.
Looking at the height of the pandemic, Hubbard-Brown reckoned that occupiers in the office sector had slowed down their real estate decision-making process amid the uncertainty, with many adopting a short-term lease renewal policy, where they could really buy time and reassess the longer-term requirements of the business. “We are now starting to see a return to pre-pandemic decision-making timelines for corporate occupiers but it is still a very methodical and drawn-out process for most corporate real estate occupiers.”
In the occupiers’ market, key hub locations that are expected to have long-term office requirements and presence are certainly able to commit to long-term lease transactions and benefit from lower rentals. “Also, the flight-to-quality trend has now restarted as health, safety and well-being rocketed to the top of most occupiers' agendas. This can also be used as a positive attractor for talent amid the great resignation that we are starting to read about, whereby the most active markets are Sydney, Hong Kong and Singapore,” said Hubbard-Brown.
Meanwhile, Hyland noted that productivity is a huge concern for corporate office occupiers. “More recently, we are starting to see additional factors creeping in, such as the onboarding of new staff, which is extremely challenging remotely, as well as staff who are new to the workforce. This is where graduates coming into their first role after university who have no experience or prior experience of what to expect from working in a corporate environment, which is extremely difficult to build company culture via Zoom or other web-based products.”
The need to provide a safe, healthy and secure environment for staff and customers to carry out their businesses is one of the priorities for corporate occupiers. Hyland said some sectors are also looking at repurposing the office environment. A number of occupiers are trialling the role of flex space offer often at a limited scale across pretty much every major market in APAC. This is driven predominantly by start-ups, fintech and the technology sector which have experienced rapid headcount growth over the past 12 to 18 months.
“The life science sector is a very early adopter and will continue to be a large occupier of flex space moving forward, probably due to the number of mergers and acquisitions (M&A) and corporate divestiture that they are experiencing in that sector,” Hyland concluded.