Private capital, particularly from High NetWorth Individuals (HNIs), is set to drive the Asia-Pacific commercial real estate market in 2023, with a focus on capital preservation over chasing yields. The report from Knight Frank highlights that HNIs, equipped with substantial cash reserves, can secure assets at competitive prices without heavy reliance on debt. Despite challenges like higher financing costs and economic uncertainty, private capital is expected to persist in the market. Market volatility has led investors to prioritize stability, resulting in a conservative risk appetite and a preference for core assets in the Asia-Pacific region.
Private capital, particularly from High Net-Worth Individuals (HNIs), is set to play a pivotal role in driving the Asia-Pacific commercial real estate market, according to a report by global property advisory firm Knight Frank. In 2023, HNIs are actively engaging in commercial real estate, emphasizing capital preservation over pursuing higher yields. The report highlights that their huge cash reserves allow for easier asset acquisitions without heavy reliance on debt, a trend expected to persist in the context of a higher interest rate environment.
The report notes a 53.4% contraction in overall transaction volume during the first three quarters of 2023, leading to projections of the lowest total volume for the entire year, reflecting significant macroeconomic challenges. The challenges include elevated financing costs, global economic uncertainty, misaligned price expectations between sellers and buyers, and slow repricing. Despite these challenges, private capital is anticipated to remain a driving force in the Asia-Pacific investment landscape.
Market volatility has prompted investors to prioritize stability, fostering a conservative risk appetite and a preference for core assets within the Asia-Pacific region.
The report underscores the emergence of the Chinese mainland as a burgeoning market in the living sectors. While still in its early stages, this sector presents substantial growth opportunities, driven by China's vast population of 1.4 billion and the challenges faced by families and young professionals in the apartment purchasing process. In response to these dynamics, some institutional players have entered the Chinese market, leveraging the identified growth factors and strategically establishing a first-mover advantage.
The emphasis on stability and core assets aligns with the cautious approach adopted by investors in navigating the complexities introduced by higher financing costs and economic uncertainties. The report recognizes that the Asia-Pacific investment market grapples with persistent challenges, influencing a contraction in transaction volumes. The strategic moves of private capital, particularly HNIs, indicate a proactive and adaptive response to these evolving market conditions.
As the year progresses, market participants will closely monitor how the interplay of challenges and strategic investments shapes the trajectory of the Asia-Pacific commercial real estate landscape. The report provides valuable insights into the ongoing shifts in investor behaviour and preferences, underscoring the importance of flexibility and strategic decision-making in navigating the complexities of the current market environment. The resilience and adaptability demonstrated by investors reflect a dynamic landscape, with a keen focus on capital preservation and strategic positioning amid macroeconomic uncertainties.
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