Knight Frank APAC Real Estate Outlook 2023: Top 5 Locations for Asian HNWIs 2nd Residence are US, Australia, New Zealand, UK & Singapore, Largest Decl
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Knight Frank APAC Real Estate Outlook 2023: Top 5 Locations for Asian HNWIs 2nd Residence are US, Australia, New Zealand, UK & Singapore, Largest Decline in Residential Volume are Hong Kong (-38.4%), Singapore (-32.3%) & Shenzhen (-20%) 24th December 2022 | Hong Kong
Knight Frank, one of the world’s largest real estate consulting firm, has released the Knight Frank APAC Real Estate Outlook 2023, providing key insights into on real estate, real estate investments, opportunities and challenges in Asia-Pacific. The top 10 locations for 2nd residence (Asian buyers, HNWIs) are United States, Australia, New Zealand, United Kingdom, Singapore, South Korea, Taiwan, Japan, Indonesia and France. In Asia-Pacific, the top 10 locations are Australia, New Zealand, Singapore, South Korea, Taiwan, Japan, Indonesia, India, Philippines and Mainland China. In 2022, the top 3 cities with largest increase in residential sales volume are Kuala Lumpur (+71.9%), Auckland (+ 15.8%), and Tokyo (+14.3%). The top 3 cities with largest decrease in residential sales volume are Hong Kong (-38.4%), Singapore (-32.3%), and Shenzhen (-20%). For Capital Markets investments in 2023, the 4 key drivers are Inflation-hedges real estate, flight-to-quality, rise of dollar real estate investors, and dominance of private and sovereign investors. The top 3 themes influencing investment strategy are Mitigating higher inflation (69%), Income security (67%), and Focus on safe haven markets (55%). The top 5 preferred real estate sectors over the next 18 months are Living Sectors (46%), Office (34%), Logistics (34%), Life Sciences (25%), and Purpose-Built Student Accommodation / PBSA (21%). View key findings below including the 2023 real estate outlook.
“ Top 5 Locations for Asian HNWIs 2nd Residence are US, Australia, New Zealand, UK & Singapore, Largest Decline in Residential Volume are Hong Kong (-38.4%), Singapore (-32.3%) & Shenzhen (-20%) “
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Knight Frank APAC Real Estate Outlook 2023 
Hong Kong | Leading Financial Centre in Asia Key Findings - Hong Kong – 5.25% to 6%
- Singapore – 4.5% to 4.8%
- Phillipines – 5.75% to 6%
- New Zealand – 4.5% to 4.8%
- Australia – 3.35% to 3.6%
- South Korea – 3.25% to 3.5%
- India – 6.25% to 6.4%
- Thailand – 2.75% to 3%
- Vietnam – 5% to 6.5%
- Indonesia – 5% to 5.5%
- Malaysia – 2.75% to 3%
- Taiwan – 1.75% to 1.9%
- Japan – Minus 0.1%
- China Mainland – 3.65%
1) Residential
Top 20 Locations for 2nd Residence (Asian Buyers, HNWIs)
Top APAC Locations for 2nd Residence (Asian Buyers, HNWIs)
2023 Residential Property Price Change
Australia / New Zealand
- Brisbane – Decrease
- Melbourne – Decrease
- Perth – Decrease
- Sydney – Decrease
- Auckland – Increase / Decrease
Asia, exclude Southeast Asia
- Beijing – Increase
- Guangzhou – Increase
- Shanghai – Increase
- Shenzhen – Increase
- Hong Kong – Decrease
- Taipei – Increase / Decrease
- Bengaluru – Increase
- Mumbai – Increase
- New Delhi – Increase
Southeast Asia
- Jakarta – Increase
- Kuala Lumpur – No Change / Increase
- Singapore – Increase
- Bangkok – Increase
- Manila – Increase / Decrease
- Ho Chi Minh City – Increase
Residential Sales Volume Year-on-Year Change (Data in June / Q3 2022)
2) Capital Markets
4 Key Drivers
Top themes influencing investment strategy
Top real estate sectors over the next 18 months
Strategies to Consider
- Office – Offices remained the main target for investors, as the region led the return to work – mainly focused on newly built offices in safe-haven markets. There remains a good base of all-cash buyers or lowly geared regional core funds keen to buy prime offices with inflation-hedging characteristics when pricing has adjusted. Market: Singapore
- Data centre – Data centre transactions have increased sharply in Asia-Pacific. Driven by tenant demand from cloud service providers moving into Southeast Asia, Australia, and Japan, there is strong demand from global investors to fund developments in these locations. Market: Australia, Japan, Southeast Asia
- Living Sectors – Living sectors tend to perform well in a downturn and possess strong structural fundamentals with good inflation-linked rental growth prospects. Demand will likely increase from offshore investors due to the low borrowing costs and sought after for its resilient income profile. The build-to-rent sector in Australia is poised for growth as major cornerstone investors enter the market, attracted by the solid immigration levels and softer house prices. Market: Australia, Japan
3) Office
Office 12 Month Rental Outlook
Increasing
- Tokyo
- Guangzhou
- Kuala Lumpur
- Bangkok
- Manila
- Ho Chi Minh City
Decreasing
- Brisbane
- Melbourne
- Perth
- Sydney
- Shanghai
- Hong Kong
- Taipei
- Singapore
Unchanged
- Auckland
- Beijing
- Shenzhen
- Bengaluru
- Mumbai
- Delhi-NCR
- Phnom Penh
- Jakarta
Office Renewal
- Completion of premium quality buildings
- Negotiable rental rate
- Short-term lease
For Tenant
- Better negotiating power to demand for advantages terms and clauses
- Lock in rents at current level to keep occupancy cost minimum
- Allows flexibility in future lease decisions
For Landlord
- Maintain occupancy rate in tough leasing market
- Ensure security of steady cashflow
- Potential rent increment opportunity in the future
Office Strategies – Tenant
- Capitalise on the widening window of opportunity for rental negotiation
- Analyse workplace utilisation and redesign the space according to the type of work arrangement endorsed and employees’ behaviours
- Focus on assets of higher calibre that can support flexible workspace design with quality amenities and services
- Implement ESG agenda, especially on the ‘S’ and ‘G’ aspects
Office Strategies – Landlord
- Prioritise occupancy over rents in current market downturn
- Cater to occupiers’ requirements if they are reasonable and feasible to retain tenancy
- Sustainably retrofit older buildings to be in line with ESG requirements in preparation of economic recovery
- Include flexible space in office portfolio
4) Logistics
Logistics – 12 Month Rental Outlook
Increasing
- Auckland
- Brisbane
- Sydney
- Melbourne
- Hong Kong
- Bengaluru
- Mumbai
- Delhi-NCR
- Singapore
- Taipei
- Ho Chi Minh City
- Bangkok
Unchanged
- Beijing
- Shanghai
- Greater Kuala Lumpur
- Manila
- Jakarta
For Tenants
- Plan in advance to relocate/expand footprint in areas with growth potential while minimising spatial needs in cost-inefficient locales
- Engage landlords proactively to get custom-built features according to company’s • Modify property features to meet the requirements of occupants, which helps to operational needs
- Invest in sustainable technology innovation, and enhance portfolios to reflect more assets with these two attributes
For Landlords
- Expand footprint into emerging logistics hubs by developing land banks in places close to new infrastructure or next to rapidly expanding neighbourhoods
- Modify property features to meet the requirements of occupants, which helps to secure large tenants, particularly in markets with sizeable incoming supply
- Modernise ageing logistics facilities in strategic locations to meet occupant demand for advanced amenities and ESG
Life Sciences
- R&D lab facilities are expanding their footprints in science parks across Asia-Pacific
- Manufacturing Facilities – Domestic demand spurring the need for more facilities that are closer to consumers
- Pharmaceutical Logistics – Increasing demand for high specification facilities that improve distribution networks and last mile efficiency
5) 2023 Real Estate Outlook
2023 Key Risks to Growth – Real Estate
- Escalation of conflict in Ukraine
- Worse-than-anticipated deterioration of economic conditions in Europe
- Hard landing in the US
- China remains mired in Capital outflows Heightened economic doldrums
- Capital outflows turn disruptive
- Heightened currency volatility
2023 APAC Real Estate Market Outlook
Key Challenges
Economy
- Interest rates/inflations stay elevated for longer
- Currency volatility
- Geopolitical tensions
Residential
- Rising mortgage rates and high inflation dampening demand
- Standoff between buyers and sellers – lower transaction volumes
Office
- Businesses keeping cost in check and CAPEX growth moderates
- Shadow space emerges
- Potential headcount reduction puts downward pressure on rents and vacancies
Logistics
- Recessionary fear, normalisation of e-commerce boom
- Structural undersupply of high-quality assets
Capital Markets
- Lower returns due to high cost of borrowing and weaker fundamentals
- Widening price gap between buyers and sellers
- Yields to move out
Key Opportunities
Economy
- Potential for interest rate cycle to peak
- Stimulus to boost GDP growth
Residential
- Outbound opportunities from Asian buyers into global markets
- Flight to safe haven markets, with transparent ownership and price growth
Office
- Better space utilisation due to cloudy economic outlook
- Flight to quality and agility/flexibility
- Enhanced amenities and workplace experience
Logistics
- Consolidations and cost savings
- New demand drivers emerged from healthcare and life science related sectors
Capital Markets
- Flight to quality and inflation hedge assets
- Redevelopment of aged asset to be ESG-compliant
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