Asia Pacific Real Estate Market Outlook 2021

CBRE RESEARCH | ASIA PACIFIC

RESTART THE UNEVEN RECOVERY

cbre.com/apacoutlook

A S I A PA C I F I C R E A L E S TAT E MARKET OUTLOOK 2021

2

CONTENTS

03 ECONOMY: RECOVER

09 OFFICE: RESET

18 RETAIL: REGAIN

22 LOGISTICS: RESILIENCE

27 INVESTMENT: REVISIT

35 APPENDIX

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

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ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

ECONOMY

RECOVER

4

ECONOMY - RECOVER

ASIA PACIFIC LEADS THE ECONOMIC REBOUND

RECOVERY EXPECTED TO BE UNEVEN

After enduring a pandemic-led economic downturn for much of 2020, green shoots of recovery began to emerge across Asia Pacific in the second half of the year. Mainland China, Taiwan and Vietnam avoided falling into recession in 2020, while Australia, Japan, Hong Kong SAR and Singapore saw GDP growth resume in the July-September quarter. Asia Pacific is outperforming other regions, with full-year 2020 GDP expected to contract by 1.2% y-o-y, compared to a decline of 3.9% globally, according to CBRE’s January 2021 forecast.

While projected GDP growth of 6.6% y-o-y for 2021 initially appears robust, this is partly due to a low base effect from 2020. CBRE’s base case scenario is for Asia Pacific GDP to return to Q4 2019 levels by the end of this year.

CBRE forecasts an uneven recovery across geographies and industries. By market, leaders in 2020 included Mainland China, which was able to contain the pandemic and restart economic activity within a relatively short timeframe.

Laggards included the Philippines and India, both of which experienced a significant recession in 2020. However, CBRE forecasts a significant uptick for the economic growth in these economies in 2021. Potential downside in these and other emerging markets centres upon the containment of the pandemic and the availability of vaccines.

The outlook for 2021 is positive, with CBRE projecting Asia Pacific full -year GDP growth of 6.6% y-o-y. However, much depends upon a potential resurgence in COVID-19 infections and the speed at which vaccination programmes are conducted around the region. Rather than a rapid “Vshaped” recovery, CBRE expects to see Asia Pacific register a “swoosh” shaped rebound featuring a gradual but steady return to pre-pandemic levels of economic activity.

While most markets in Asia Pacific are reporting lower caseloads, a recent uptick in infections in Indonesia, Malaysia and Japan may delay their recovery.

FIGURE 1: GDP INDEX OF MAJOR ECONOMIES (BASE AT Q4 2019) 120

APAC (Ex.China)

115

Euro Area

USA

Mainland China

Q4 2019 = 100

110 105 100 95 90 85 80 2019 Q4

2020 Q1

2020 Q2

2020 Q3

2020 Q4

2021 Q1

2021 Q2

2021 Q3

2021 Q4

2022 Q1

2022 Q2

2022 Q3

2022 Q4

Source: CBRE House-view, Oxford Economics, January 2021.

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ECONOMY - RECOVER

FIGURE 2: 2020 & 2021 GDP FORECAST FOR MAJOR ASIA PACIFIC ECONOMIES

Markets avoiding recession 12%

Laggards in 2020 but set to rebound strongly

2020

2021

9% 6% 3% 0%

-3% -6% -9%

Japan

Korea

Australia

New Zealand

Thailand

Indonesia

Hong Kong SAR

Singapore

Malaysia

The Philippines

India

Taiwan

Mainland China

Vietnam

APAC

-12%

Source: CBRE House-view, January 2021.

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6

ECONOMY - RECOVER

MAJOR INDUSTRIES REPORT POSITIVE REVENUE GROWTH Companies in the technology and life sciences industries enjoyed strong revenue growth in 2020, while major office-based industries including banking and insurance have also proven resilient. While consumption-related sectors such as retail and automotive have been hit hardest by the pandemic, most are poised for a substantial rebound this year.

IMPLICATIONS FOR REAL ESTATE Resilient office-based industries and a strong retail recovery will support leasing demand in 2021. The sustained growth of the technology and life sciences sectors is set to generate investor interest in business parks and laboratory facilities. Leasing demand will be strongest in Mainland China and India.

FIGURE 3: FORECASTED REVENUE GROWTH BY INDUSTRY 2020E -30%

-20%

-10%

0%

2021F 10%

20%

30%

TMT Life Sciences Consumer products Insurance Banking and finance

STRONG REBOUND IN PRIVATE CONSUMPTION H2 2020 saw an increase in private consumption in Asia Pacific, fuelled by the accumulation of household savings during lockdowns. Most markets have seen retail sales improve on a monthly basis since Q3 2020.

Despite the formation of travel corridors between selected markets, such as the Australia-New Zealand bubble which is due to commence in Q1 2021, crossborder travel to and from many markets will remain subject to restrictions for most of the year. Markets reliant upon tourism will therefore experience a delayed recovery.

Automobile Retail Energy

Source: Capital IQ, CBRE Research, January 2021.

IMPLICATIONS FOR REAL ESTATE While retail leasing demand contracted significantly in 2020, the second half of 2021 should see a steady recovery, led by Asian retailers and leading foreign brands. Mainland China will drive the recovery, while retailers are also optimistic for prospects in India, Vietnam and Taiwan.

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7

ECONOMY - RECOVER

CORPORATE INVESTMENT SET TO REMAIN CAUTIOUS While office-based industries remain in healthy financial shape, the uneven economic recovery will deter most occupiers from committing to significant capital expenditure until H2 2021. Although CBRE’s latest Asia Pacific Flash Survey indicated that 49% of retailers intend to open new stores over the next 12 months, these plans will fall under the umbrella of portfolio optimisation, which will also involve the elimination of under-performing locations. In the logistics sector, investment in supply chain resilience will remain brisk.

IMPLICATIONS FOR REAL ESTATE Occupiers will continue to seek opportunities to enhance corporate real estate portfolio agility but will retain a cautious approach to capital expenditure in H1 2021. Investment in logistics will remain upbeat. CBRE is guardedly optimistic towards prospects for retail investment, while the office demand recovery will be slower in mature markets than emerging ones.

LOWER INTEREST RATES FOR EVEN LONGER The U.S. Federal Reserve intends to maintain the federal funds rate at near zero until inflation has reached 2% and full employment is achieved: both of which are unlikely to occur in 2021. With the economic recovery only just underway, Asia Pacific’s central banks will keep interest rates low and maintain quantitative easing.

IMPLICATIONS FOR REAL ESTATE The prolonged low interest rate era will enhance the appeal of commercial real estate investment compared to other interest-sensitive asset classes.

Cap rates will remain low, with the logistics sector across most markets set to experience further yield compression.

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ECONOMY - RECOVER

THE END OF STIMULUS

IMPLICATIONS FOR REAL ESTATE

The introduction of massive stimulus packages, including large subsidies to affected individuals and businesses, has somewhat cushioned the impact of measures to contain the pandemic. CBRE estimates that more than US$4.4 trillion – representing just under 15% of regional GDP – has been poured into the Asia Pacific economy in 2020. The impeding expiration of most of these schemes could expedite decisions related to redundancies and business closures, which would drag on a recovery in 2021. Nonetheless, governments are likely to maintain accommodative fiscal and monetary policy to support economic growth.

The end of support measures such as rental holidays and abatements could negatively impact leasing demand in H1 2021. SMEs as well as small retail and F&B enterprises are more vulnerable.

FIGURE 4: ASIA PACIFIC STIMULUS PACKAGES AS A % OF 2019 GDP Expire by 2020

60%

Expire by 2021

As % of 2019 GDP

50% 40% 30% 20%

10%

Vietnam

Indonesia

Mainland China

Taiwan

The Philippines

Australia

Hong Kong SAR

New Zealand

India

Thailand

Korea

Singapore

Malaysia

Japan

0%

Note: The figure shown in the chart accounts for all government support measures related to COVID-19.

Source: UBS, The Guardian, Government Announcements, CBRE Research, 29 December 2020.

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ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

OFFICE

RESET

10

OFFICE – RESET

RESETTING REAL ESTATE STRATEGY With occupiers forced to respond to short term disruption caused by the pandemic, most companies opted to postpone major leasing decisions for the duration of 2020.

Strategies for business, workplaces and the workforce and real estate portfolios are set to converge in 2021 as occupiers crystalise a fresh new approach to creating the offices of the future.

The relatively successful mass adoption of remote working is prompting a rethink of workplace design and utilisation, challenging traditional decision-making processes based on headcount growth and forcing companies to take a more holistic view of portfolio planning.

Locational preferences are being re-examined to cater to a more dispersed and decentralised workforce. Companies are prioritising portfolio agility and resilience to guard against sudden economic fluctuations and an uneven recovery.

FIGURE 5: TRADITIONAL REAL ESTATE STRATEGY DECISION-MAKING PROCESSES AND CHANGES RESULTING FROM THE PANDEMIC

BUSINESS GROWTH

Disruption to business activity and uncertain outlook

HEADCOUNT GROWTH

WORKSPACE DEMAND

LOCATIONAL STRATEGY

A mobile workforce aligned with flexible working

Change in the type of activity in the office; the need to work from the office

Agglomeration effect; benefits of having industrial clusters could be challenged

CHANGE IN CONSIDERATIONS SINCE THE PANDEMIC

Source: CBRE Research, January 2021.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

IMPLICATIONS FOR REAL ESTATE C-suite executives will take a more hands-on role in formulating longer-term corporate real estate strategy. Landlords and investors will need to refine their building hardware and tenant services to remain competitive.

FIGURE 6: NEW METRICS INFORMING OFFICE STRATEGY

Labour Consideration

WORKFORCE STRATEGY

Location Consideration

BUSINESS STRATEGY

THE FUTURE OF WORK

PORTFOLIO STRATEGY

Design & Experience Consideration

WORKPLACE STRATEGY

Occupancy Consideration

Source: CBRE Research, January 2021.

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11

OFFICE – RESET

HYBRID WORKING MODEL TO SUPPORT STABLE OFFICE DEMAND Although employees in most Asia Pacific markets have now returned to the office, CBRE expects many companies to retain the hybrid working models they adopted in response to the pandemic. While employees will be able to choose between working remotely or at the office, CBRE’s latest survey found that more than 70% of managers would prefer to have office-based staff 1 .

With offices here to stay, occupiers must overhaul workplace design and configurations to strengthen health and safety protocols and enhance user experience.

Grade A net office absorption in 2020 totalled just 31 million sq. ft. GFA, the lowest annual total in more than a decade. This was due to a halt in leasing activity following the onset of the pandemic combined with a phase of evaluation to consider the impact of remote working.

CBRE expects Asia Pacific office demand in 2021 to increase by 5% over last year, supported by an improvement in the general business outlook together with the resilient performance of selected office-based industries. Leasing demand will be led by the technology and financial sectors, both of which have been largely unaffected by the pandemic. The rebound in domestic consumption will support the resumption of leasing demand from companies in the retail and consumer products industries.

The structural shift to tertiary industry in emerging Asia will provide another tailwind for office space demand. Services sector employment in emerging Asia has registered a cumulative growth rate of 15%-30% over the past ten years. While the sector currently accounts for under 50% of total employment, there is significant room for growth, with the corresponding figure in the U.S standing at around 80%.

1 Asia

Nevertheless, many occupiers will continue to seek short term opportunities to extract cost savings from their real estate. Occupiers are expected to retain a cautious attitude towards CapEx in H1 2021, with leasing activity likely to pick up in the second half of the year as companies gain confidence in the recovery. Expansionary demand is likely to be dominated by domestic and regionally-based companies due to their quicker approval processes and relatively lower adoption of remote working.

Having been among the first countries in Asia Pacific to see office demand recover to pre-pandemic levels, leasing activity in Mainland China is set to gain further momentum in 2021. While the caseload in India remains high, companies are now welcoming employees back to the office – a trend that should support new demand this year.

Limited new supply will inhibit net take-up in Tokyo and Seoul. Leasing momentum in Australia, Hong Kong SAR and Singapore will remain dominated by smaller requirements but net absorption is expected to return to positive territory.

IMPLICATIONS FOR REAL ESTATE Cost savings and CapEx constraints will be the key determinants of leasing decisions in H1 2021. Landlords must be more proactive in offering incentives to secure new lettings, while retaining tenants will be a priority.

Pacific The Future of the Office Survey, CBRE Research, October 2020.

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OFFICE – RESET

FIGURE 7: ASIA PACIFIC REGIONAL GRADE A OFFICE NET ABSORPTION

FIGURE 8: ASIA PACIFIC GRADE A OFFICE NET ABSORPTION BY MARKET

(3) Million sq. ft. NFA Q1

Q2

Q3

Q4

70 60 50

FLAT TO +5%

40 30 20 10

Source: CBRE Research, January 2021.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

2021F

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

0

(1)

Bangalore Shenzhen Delhi NCR Shanghai Mumbai Guangzhou Beijing Seoul Tokyo Hong Kong SAR Hanoi Melbourne Perth Taipei Sydney Singapore Auckland Ho Chi Minh City Brisbane

1

3

5

7

‘000 sq. ft. NFA 9 11

2020 2021F

Source: CBRE Research, January 2021.

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OFFICE – RESET

NEW SUPPLY AND RISING VACANCY IMPROVE OCCUPIER CHOICE

FIGURE 9: ASIA PACIFIC GRADE A OFFICE SUPPLY PIPELINE “000 sq. ft. NFA

New Grade A office supply in Asia Pacific is projected to reach 58 million sq. ft.

NFA in 2021, a slight increase on the 55 million sq. ft. NFA registered in 2020.

As in recent years, new supply will be concentrated in Mainland China, India and Southeast Asia (excluding Singapore and Vietnam), where completions due to come on stream this year will account for an average of 5% – 10% of existing Grade A stock.

In markets such as Beijing, Shanghai, Shenzhen, Jakarta and Delhi NCR, where space availability, particularly in decentralised locations, is already very high, upward pressure on vacancy will intensify. Elsewhere, low vacancy in Manila and Bangalore will shield these cities from the impact of new supply.

While accounting for a small portion of overall office stock, an increase in sublease and shadow space resulting from space returned by foreign banks and professional services firms will further add to vacancy pressure in Hong Kong SAR, Singapore, Tokyo and Sydney. However, much of this space is available in core CBD and high-quality buildings and is therefore more likely to be absorbed.

CBRE expects Asia Pacific Grade A vacancy to rise to an all-time high of 16% by end-2021 due to the combined impact of subdued demand, large new supply and excess sublease/shadow space.

IMPLICATIONS FOR REAL ESTATE Higher vacancy will expand occupier choice and provide tenants with the upper hand in negotiations. Tenants’ preference for high quality, tech enabled and wellness-enhancing buildings will support continued flight to quality. This trend will be more prominent in Mainland China, Australia and Indian cities where vacancy is peaking.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

0

2

Shanghai Bangalore Shenzhen Delhi NCR Guangzhou Mumbai Jakarta Beijing Bangkok Melbourne Kuala Lumpur Tokyo Seoul Manila Sydney Singapore Hong Kong SAR Taipei Auckland Hanoi Ho Chi Minh City Perth

4

6

8

10

2020 2021F

Note: Pacific markets report total grade net new supply Source: CBRE Research, January 2021.

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14

OFFICE – RESET

HUB OFFICE STRATEGIES TAKE SHAPE The widespread adoption of remote working and employees’ reluctance to engage in long commutes are prompting occupiers in the region to rethink their office locations.

In Asia Pacific, rapid urbanisation and infrastructure improvements have helped many cities establish new decentralised business hubs, attracting occupiers seeking lower costs and higher efficiency. Examples include North Sydney and Parramatta in Sydney; Noida and Gurgaon in the Delhi NCR; Greater Hongqiao in Shanghai, Yokohama in Greater Tokyo; and Kowloon East in Hong Kong SAR. CBRE’s Asia Pacific The Future of the Office Survey found that 31% of Asia Pacific companies are considering adopting a hub and-spoke office model. A further 30% of respondents said that the pandemic had made it less important to maintain large headquarters offices in CBDs. While some companies are evaluating the feasibility of establishing a network of offices spread across different locations, this will require them to balance employees’ needs with working efficiency and cost control. Locations providing excellent transport links; proximity to the CBD; accessibility to FIGURE 10: TOTAL APAC LEASING VOLUME BY DISTRICT (%) Major business districts

Decentralized

residential catchment areas; affordable rents; and retail amenities will be keenly sought after.

Supported by improved infrastructure and new high quality stock, office leasing activity in Asia Pacific has begun to shift to areas outside the CBD. Major non-CBD business areas accounted for 45% of leasing volume in 2020, up from 36% in 2016. Occupier choice in non-CBD locations will further expand in 2021, with around 46% of new supply due for completion expected to be in decentralised areas.

While some new business districts will require more time to develop and establish themselves as attractive destinations, mature non-core districts already hold considerable appeal to occupiers seeking cost savings, high quality new buildings and good accessibility.

In terms of rents, CBRE expects those in decentralised areas to exhibit a more stable performance than those in CBD areas in 2021 to a low base effect and better affordability.

FIGURE 11: NEW SUPPLY PIPELINE BY PROJECT SIZE, 2021

CBD

50%

Decentralized

40% Major business districts 30%

Small to Medium Large

CBD

20%

Mega

10%

2016

2017

2018

2019

Q1 -Q3 2020

Note: The chart represents net take-up in 11 markets including Hong Kong SAR, Singapore, Beijing, Shanghai, Seoul, Tokyo, Bangalore, Mumbai, New Delhi, Sydney CBD and Melbourne CBD. The office locations are subjected to respective local market definition and judgement Source: CBRE Research, January 2021.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

10

20 30 (NFA, million sq. ft.)

40

50

Note: Buildings with a total size of 500,000 sq. ft. are classified as “Small to Medium” ; 500,001 – less than 1 million sq. ft. are classified as “Large” ; and over 1 million sq. ft. are classified as “Mega” Source: CBRE Research, January 2021.

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15

OFFICE – RESET

FIGURE 12: ASIA PACIFIC OFFICE RENTAL PERFORMANCE IN CBD AND DECENTRALISED AREAS IN 2021

Less downward pressure in decentralised areas

4.0%

40%

2.0%

20%

IMPLICATIONS FOR REAL ESTATE 0.0%

0%

CBD Grade A Rental Change

Decentralised Rental Change

Melbourne

Shenzhen

Guangzhou

Ho Chi Minh City

Singapore

Shanghai

-80%

Tokyo

-8.0%

Hong Kong SAR

-60%

Beijing

-6.0%

Sydney

-40%

Mumbai

-4.0%

Manila

-20%

Bangalore

-2.0%

The feasibility of the hub-and-spoke model depends on the design of individual cities and the maturity of their decentralised business hubs. Markets such as Shanghai, Hong Kong SAR, Tokyo, Singapore, Sydney and Bangalore are most suited to the model.

This trend is likely to prompt landlords to offer a more diverse range of building types and locations to retain tenants.

Discount on Rents (RHS)

Note: Chosen CBD Vs Decentralised area for comparison: Hong Kong SAR – Central vs Kowloon East; Mumbai – BKC vs Western suburb; Tokyo – Marunouchi Vs Yokohama; Ho Chi Minh City – District 1 vs District 7; Singapore – CBD vs Paya Lebar; Bangalore – ORR vs Whitefield; Shenzhen – CBD vs Qianhai; Sydney – CBD vs North Sydney; Shanghai – Core CBD vs Qiantan; Beijing – CBD Vs Wanjing; Guangzhou – CBD vs Pazhou; Manila – Makati vs Fort Banifacio; Melbourne – CBD vs Southbank Source: CBRE Research, January 2021.

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16

OFFICE – RESET

RENTAL DECLINE TO LOSE MOMENTUM The Asia Pacific Office Rental Index declined by just 4.7% in 2020, with Hong Kong SAR, Singapore, Sydney and Shenzhen markets to register a correction of more than 10%. In comparison, the Index contracted by more than 30% in the six quarters following the onset of the Global Financial Crisis (GFC) in mid-2008. The resilience displayed since the pandemic owes much to the fact that key office occupying industries such as technology, finance and professional services have been largely unaffected by the economic downturn.

In addition, the Asia Pacific office market has also grown in size and maturity since the GFC, ensuring less volatility in rental performance.

The regional office leasing market nevertheless remains weak and will continue to favour tenants in 2021. Landlords are expected to remain accommodative and will need to offer low rents and high incentives to maintain occupancy. Grade A rents are therefore likely to remain under downward pressure for the duration of the year.

CBRE expects Grade A rents in core locations of most markets to decline within a range of -5% in 2021.

•

Seoul, Taipei, Ho Chi Minh City and Bangkok will see stable or slightly higher rents.

•

In Greater China, rents in most tier I cities will decline at a slower pace than in 2020, with submarkets outperforming. The Guangzhou CBD will be the first market to see rents stabilise. Hong Kong SAR, which registered the region’s sharpest rental decline in 2020, is expected to see a mild fall over the course of the year.

•

Incentives in most Pacific markets are unlikely to increase further, meaning that effective rents are likely to decline at a slower pace. The Perth CBD could see incentives fall from current high levels, while Melbourne will lag in terms of recovery.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

•

In India, landlords in key outsourcing destinations such as Bangalore will hold rents firm but rents other cities will continue to face downward pressure in the first few months of 2021.

•

The rental decline in Tokyo and Manila Makati is expected to accelerate along with rising vacancy.

As the current rental downcycle is quite mild, the cumulative change in rents since 2018 (assuming a three-year lease) may still be positive. This means that spot rents for new leases could still be higher than ongoing rents for tenants seeking relocations or renewals.

IMPLICATIONS FOR REAL ESTATE The mild downcycle and burgeoning economic recovery make it imperative for occupiers to capitalise on current weak leasing sentiment to negotiate better terms before the window of opportunity closes. Landlords in oversupplied markets are advised to prioritise securing good quality tenants over obtaining higher rents. Property owners must also be more accommodative by offering incentive packages, shorter terms and optionality in new leases.

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OFFICE – RESET

FIGURE 13: ASIA PACIFIC GRADE A OFFICE RENTAL FORECAST 20%

Grade A rents for new leases likely higher than ongoing rents

15%

2020

2021F

2019-2021 (Three-year cumulative growth)

10% 5% 0% -5% -10% -15% -20% -25% -30%

Hong Kong SAR

Shenzhen

Shanghai

Sydney

Beijing

Jakarta

Brisbane

Melbourne

Guangzhou

Auckland

Tokyo

Ho Chi Minh City

Singapore

Hanoi

Mumbai - ABD

Delhi NCR - Gurgaon

Seoul

Bangalore - ORR

Perth

Taipei

Bangkok

Manila Makati

-35%

Source: CBRE Research, January 2021.

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ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

R E TA I L

REGAIN

19

R E TA I L - R E G A I N

Asia Pacific registered a steady uptick in retail trading activity in H2 2020 following the relaxation of lockdowns and other mobility restrictions. Mainland China is leading the rebound in discretionary consumption, with cosmetics and jewellery sales achieving y-o-y growth of 32.3% and 24.8%, respectively, in November 2020.

The modest regional recovery is expected to continue in H1 2021. However, a recent resurgence in COVID-19 infections and subsequent tightening of social distancing measures will inevitably exert a negative impact on brick-andmortar retail. Additional headwinds include the expiry of government stimulus packages, which will have a detrimental effect on the labour market. Most respondents to CBRE Asia Pacific’s October 2020 Retail Occupier Flash Survey stated that business activity is unlikely to fully recover to pre-pandemic levels until H2 2021.

Several Asia Pacific markets have relaxed restrictions on cross-border travel for business or family reasons but tight controls on leisure travel continue to weigh on the near-term outlook for the retail market in inbound tourist-driven destinations such Hong Kong SAR, Bangkok and Seoul. Nonetheless, markets with strong domestic tourism, such as Mainland China and Australia, will perform comparatively better.

The pandemic-led surge in e-commerce sales witnessed in H1 2020 has begun to stabilise. 2021 will see milder y-o-y growth in online retail consumption due to a high base effect.

FIGURE 14: RETAIL SALES TO RECOVER IN H2 2021

Time needed from October 2020 for business activity to return to pre-pandemic levels

37%

% of respondents

REBOUND IN RETAIL CONSUMPTION SET TO CONTINUE

29%

16%

6%

7% 5% Sales unlikely to recover to pre-pandemic levels until H2 2021

Within 1 month

1 to 3 months

3 to 6 months

6 to 12 months

More than 12 months

2022 or beyond

IMPLICATIONS FOR REAL ESTATE Source: Asia Pacific Retail Occupier Flash Survey, CBRE Research, October 2020.

With the shift to e-commerce fundamentally changing shopping behaviour, retailers will focus on refining their online offering. Landlords should also invest in proptech to enhance consumer experience.

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20

R E TA I L - R E G A I N

GRADUAL RECOVERY IN EXPANSIONARY DEMAND Retail leasing demand is expected to pick up over the course of 2021, with half of respondents to CBRE Asia Pacific’s October 2020 Retail Occupier Flash Survey stating that they intend to proceed with new store openings this year. Gateway cities will remain the primary focus for international retailers, with many groups focusing on Asia Pacific for business growth due to the region’s relative success in containing the pandemic. Mainland China, where brick and-mortar retail operations are largely back to normal, will see the strongest interest. While European and U.S. retailers retain a strong appetite for expansion, travel restrictions continue to hinder site visits and leasing decisions.

CBRE expects demand to be driven by domestic brands, supported by growing interest in local and regional products and designs among younger shoppers. Many such retailers will be looking to capitalise on the current downturn to conduct flight-to-quality relocations. Nevertheless, retailers will continue to adopt a prudent approach towards expansion as the economic recovery remains at a very early stage. With closures of underperforming locations set to continue, net growth in the number of stores will be limited.

Improved space availability and lower rents will drive online retailers to establish brick-and-mortar stores as they look to enhance their brand and establish new sales channels. In the F&B segment, operators will further augment their online capacity by opening takeaway outlets and utilising dark kitchens to serve on-demand delivery apps.

IMPLICATIONS FOR REAL ESTATE

FIGURE 15: REAL ESTATE LEASING ACTIVITY IN 2021 % of Respondents Store openings / expansion plans will go ahead

Store openings/ expansion plans will go ahead

49%

Expansions / new will openings put Expansions/ new openings be putwill onbe hold

39%

on hold

CAPEX CAPEXforforfitfitout outwill willbe bereduced reduced

37%

Space will/be surrendered / leases will Space will be surrendered leases will be terminated

25%

be terminated

Site visits will be delayed / cancelled

Site visits will be delayed / cancelled

Renewals will be delayed

Renewals will be delayed

18%

15%

Source: Asia Pacific Retail Occupier Flash Survey, CBRE Research, October 2020.

While portfolio rationalisation and lease restructuring are set to continue, rising space availability will provide retailers with opportunities to reduce rental expenses while enhancing the quality of their store network. CapEx for new leases and store fit-outs will remain tight in the absence of solid and sustainable signs of recovery.

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21

R E TA I L - R E G A I N

RENTS SET TO BOTTOM OUT After falling by 11.3% y-o-y in 2020, Asia Pacific retail rents are expected to stabilise over the course of 2021. Rental growth will be led by Mainland China, while most other markets will experience a mild correction. Laggards will include Hong Kong SAR, which is forecasted to experience an additional 10 to 15% y-o-y decline in high street rents this year, bringing rents to levels last witnessed in 2003. While rents are not expected to stabilise until 2022, those for shopping centres are expected to be more resilient.

With landlords forced to retain a flexible stance towards rents and terms, retailers will command strong bargaining power. CBRE expects shopping mall performance metrics to broaden beyond in-store sales to include omnichannel sales and other criteria such as foot traffic generation, in -mall engagement and social media performance. Other key trends will include retailers demanding more detailed Force Majeure clauses and/or early break options in lease agreements.

Demand for prime CBD retail space will recover as employees gradually return to the office and lower rents attract upgrading demand. While neighbourhood retail will continue to perform well as consumers opt to shop locally, malls lacking strong residential catchments will struggle. The shift to omnichannel retail may encourage some landlords to convert underperforming assets to last mile delivery hubs to service e-commerce delivery.

IMPLICATIONS FOR REAL ESTATE Rather than competing on rents, landlords should invest in enhancing their building hardware and services. Closer partnerships and collaboration with tenants, particularly in the areas of marketing and promotion, will be essential.

FIGURE 16: 2020 – 2021F ASIA PACIFIC RETAIL RENTAL PERFORMANCE 5%

Y-o-Y Change

0% -5% -10% -15% -20% -25%

Tokyo (Ginza)

Melbourne

Auckland

Perth

Brisbane

Singapore

Taipei 2021F

Hong Kong SAR

2020

Hanoi - Prime

Sydney

Shenzhen

Beijing

Guangzhou

Shanghai

HCMC - Prime

-30%

Remarks: Retail rental growth refers to high streets in prime areas except China, Singapore, Vietnam, Australia and New Zealand where G/F rents of shopping centres are reported. Australia and New Zealand report the net effective rents of regional centres.

Source: CBRE Research, January 2021.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

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ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

LO G I S T I C S

RESILIENCE

23

LO G I ST I CS - R E SI L I E N CE

GLOBAL TRADE RECOVERY AND CONSUMPTION-LED GROWTH

SPECIALISED FACILITIES FOR ADVANCED NETWORK DISTRIBUTION

The Asia Pacific logistics market will continue to thrive in 2021 on the back of rising domestic consumption and a recovery in global trade. The International Monetary Fund (IMF) expects global trade volume to grow by 8.3% y-o-y in 2021 compared to a contraction of 10.4% y-o-y in 2020. While U.S.- China relations are expected to improve this year, tension between China and other countries such as Australia may weigh on regional trading activity.

E-commerce will continue to drive logistics leasing demand in 2021 as the pandemic accelerates the shift to omnichannel retailing. Urban fulfillment centres, particularly those near residential neighbourhoods, will continue to attract strong interest.

Pandemic-induced supply chain disruption has led many companies to review and strengthen supply chain resilience by diversifying production and sourcing. India and Southeast Asia will continue to benefit from the adoption of “China Plus One” strategies. However, Mainland China remains one of the world’s largest consumption markets and key player in the global supply chain. Manufacturing capacity in China is therefore likely to increase further to serve domestic demand, a strategy now known as “China for China”.

Asia Pacific online grocery sales are projected to rise by a Compound Annual Growth Rate (CAGR) of 30% between 2019 to 2024 2 . Coupled with the growth of on-demand food delivery witnessed since the onset of the pandemic, demand for cold storage, food processing centres and dark kitchens will continue to expand.

FIGURE 17: ONLINE RETAIL SALES GROWTH IN ASIA PACIFIC ASIA PACIFIC - TOP ONLINE RETAIL CATEGORIES BY 2019 TO 2024 CAGR Grocery

CBRE retains an optimistic view towards long term regional warehouse demand from the trading sector. Regional trade activity is poised to accelerate following the recent signing of the Regional Comprehensive Economic Partnership (RCEP) between major Asia Pacific economies, which will remove up to 90% of existing tariffs within the next two decades.

Beauty and cosmetics

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

16%

Media (books, music and videos) Personal and Home Appliances

IMPLICATIONS FOR REAL ESTATE Supply chain resilience will come under scrutiny as companies guard against disruption. Strategies such as expanding network resiliency and boosting local inventory will translate into long-term warehouse space demand.

30%

11% 8%

Apparel and accessories

7%

Consumer electronics

7%

Source: ForecastView Asia Pacific Retail Forecast (COVID-19 Update), Forrester, November 2020.

Demand for highly specialised cold storage for pharmaceuticals, particularly vaccines, will reach new highs this year. Fosun Pharma has built a 2,000 sq. m. cold storage facility with ultra-cold refrigerators (-70 degrees Celsius) in Shanghai Pudong Airport to store and distribute vaccines3 .

2

Forrester, November 2020.

3

South China Morning Post, 31 December 2020 [Link] CBRE RESEARCH | © 2021 CBRE, INC.

24

LO G I ST I CS - R E SI L I E N CE

MODERN WAREHOUSE TECHNOLOGY GAINS TRACTION The deployment of robots and automation systems to enhance warehousing operating efficiency is expected to further stimulate demand for warehouse space in 2021.

High-cost storage systems such as Automatic Storage & Retrieval Systems (ASRS) are increasingly popular among large e-commerce companies. However, a 2019 survey by Prologis found that only 3% - 5% of logistics customers in the U.S. are equipped with fixed automation systems. These solutions usually require build-tosuit properties or the consolidation of operations into large scale new-builds which have higher ceilings and wider columns and bay spacing. Power supply requirements for such facilities are generally higher and need dedicated server rooms.

Occupiers with smaller volume requirements can adopt semi-automatic solutions such as conveyors and pallet shutters. Robotics-as-a-Service (RaaS) models are also emerging in the logistics sector as more occupiers seek low-priced and flexible robotics options. Automatic Guided vehicles (AGVs) and Autonomous Mobile Robots (AMRs) are expected to be more widely adopted in warehouse operations in 2021 and beyond.

IMPLICATIONS FOR REAL ESTATE The pandemic will continue to drive a shift towards omni-channel retailing.

Technology will lead to significant advances in warehouse operations and efficiency.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

CBRE RESEARCH | © 2021 CBRE, INC.

25

LO G I ST I CS - R E SI L I E N CE

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

40 30 20 10

Wellington

Canberra

Perth

Adelaide

Shenzhen

Auckland

Singapore

Brisbane

Melbourne

Beijing

Guangzhou

0

Hong Kong SAR

Given that transport cost accounts for more than half of total supply chain cost, facilities with well-connected transport networks will be keenly soughtafter. Occupiers are advised to conduct real estate strategy reviews well in advance in order to secure their preferred locations.

50

Greater Osaka

IMPLICATIONS FOR REAL ESTATE

60

Sydney

Solid logistics market fundamentals will continue to attract investors to participate in new warehouse development. While the near-term rental outlook should be unaffected by the steady increase in new supply, longer-term rental growth prospects may soon diminish.

2021

70

Shanghai

The limited supply of industrial land remains a challenge in tier I cities of Mainland China, with the shortage of in-city last-mile facilities prompting occupiers to turn their attention to adjacent tier II cities in coastal areas. New supply in the central and western regions of the country is relatively more substantial and will include numerous warehouses developed by major e-commerce platforms, some space in which will be made available for lease.

2022

Greater Tokyo

The bulk of new supply due to be added this year is in Greater Tokyo and Greater Seoul. Both cities are reporting strong pre-leasing demand from e-commerce companies amid continued tight availability.

80

Greater Seoul

Pandemic-induced delays to several new logistics schemes due for completion in 2020 have pushed up projected new supply for 2021 to 94 million sq. ft., an increase of 26% y-o-y. Despite the surge in new stock, robust demand from omnichannel retailing and a recovery in the trade and manufacturing sectors should ensure vacancy remains low.

FIGURE 18: 2021 AND 2022 INDUSTRIAL & LOGISTICS PIPELINE

Development Pipeline (Million sq. ft.)

SPACE AVAILABILITY TO REMAIN TIGHT

Note: Supply in the Pacific is total industrial space while Asia reports the logistics pipeline Source: CBRE Research, January 2021.

CBRE RESEARCH | © 2021 CBRE, INC.

26

LO G I ST I CS - R E SI L I E N CE

STEADY RENTAL GROWTH TO CONTINUE Asia Pacific logistics rents are expected to rise across all markets in 2021.

Tier I cities in Mainland China will edge out Greater Tokyo and Singapore as the drivers of regional logistics rental growth, with the rate of increase in Beijing, Guangzhou and Shenzhen set to accelerate on the back of a recovery in leasing demand and limited urban supply.

In Singapore, prime logistics stock occupied by pandemic-driven government stockpiling will be returned to the market in H2 2021, limiting prospects for rental growth. Rents in Hong Kong SAR are forecasted to stabilise due to an increase in forced relocation demand resulting from the redevelopment and revitalisation of older industrial buildings.

In Pacific markets, incentives rose over the course of 2020 as landlords responded to the economic downturn. This year will see stronger rental growth but the recovery in Melbourne will be delayed by a second lockdown in Q3 2020 and a growing number of sublease space released by Third Party Logistics (3PL) occupiers. In Auckland, institutional landlords began reducing incentives from H2 2020 as the pandemic was contained. Rapidly increasing land prices and construction costs are likely to translate into higher rents in the coming years.

IMPLICATIONS FOR REAL ESTATE Strong fundamentals and sustained rental growth will drive investment interest in logistics to new highs4 . In view of the construction boom, landlords are advised to futureproof their portfolios by upgrading supporting facilities such as cold rooms and server rooms to cater to evolving occupier demand or redeveloping older facilities in prime logistics locations.

4

FIGURE 19: 2020 – 2021F ASIA PACIFIC LOGISTICS RENTAL PERFORMANCE

Asia Pacific Investor Intentions Survey, CBRE Research, January 2021.

Y-o-Y Growth

6%

2020

2021F

3% 0% -3% -6%

Sydney

Melbourne

Hong Kong SAR

Brisbane

Singapore (Prime)

Greater Seoul

Greater Tokyo

Perth

Vietnam (Northern Region)

Shenzhen

Auckland

Vietnam (Southern Region)

Guangzhou

Shanghai

Beijing

-9%

Remarks (1) Vietnam (Southern Region) includes Ho Chi Minh City, Binh Duong, Dong Nai and Long An while Northern Region includes Hanoi, Bac Ninh, Hung Yen, Hai Duong and Hai Phong (2) Logistics rental growth for Asian markets refer to face rents while Pacific markets refer to effective rents.

Source: CBRE Research, January 2021.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

CBRE RESEARCH | © 2021 CBRE, INC.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

INVESTMENT

REVISIT

28

INVESTMENT - REVISIT

PURCHASING SET TO GAIN MOMENTUM

DEAL SOURCING OPPORTUNITIES

Investment activity and deal flow experienced significant disruption in H1 2020. However, sentiment began to recover in H2 2020, with investment volume subsequently increasing by 44% from the first six months of the year.

Purchasing activity is set to gain further momentum in 2021, with CBRE’s 2021 Asia Pacific Investor Intentions Survey finding that around 60% of investors in the region intend to purchase more real estate this year than they did in 2020, the highest level since 2016.

Assets available from fund expiries

FIGURE 20: FORECASTED ASIA PACIFIC INVESTMENT VOLUME

Funds approaching a hard deadline for expiry are mostly located in China, India and Australia and primarily possess retail and some office properties, along with a few hotels in Southeast Asia. With these funds under pressure to offload assets upon expiry, there will be opportunities for investors to negotiate attractive pricing.

FIGURE 21: ASIA PACIFIC-FOCUSED CLOSE-ENDED REAL ESTATE FUND EXPIRATION 20

160

40

15

120

US$ billion

US$ billion

140

50

100 80 60 40 20

30

10

20

5

10

0

0 2021

Q1

Q2

Q3

Q4

2021F

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

0

Forecast

Remarks: Transaction volume includes office, retail, industrial, hotel, mixed-use and other commercial properties.

Residential and development site are excluded.

Source: CBRE Research, January 2021.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

Total number of funds

While many investors continue to seek discounts, office prices remain resilient, with Hong Kong SAR the only market to register a significant correction. In the logistics sector, robust demand will continue to compress yields across most markets this year. Although both the retail and hotel sectors have seen a sizable price correction, investors retain a cautious stance towards these asset classes due to the poor outlook for income streams. Low for even longer interest rates and substantial liquidity will ensure landlords maintain current pricing over the course of 2021.

CBRE data show that the expiration of Asia Pacific-focused close-ended real estate funds will peak in 2021-2022, with funds worth a Gross Asset Value (GAV) of about US$31 billion due to reach cessation. Among these funds, 20 funds with a GAV of close to US$10 billion have options to extend their fund life.

2022

2023 2024 2025 Planned Termination Year Gross asset value (LHS) Gross asset value from funds extended fund life (LHS) Total number of funds (RHS)

Source: Preqin, INREV/ANREV, CBRE Research, January 2021.

CBRE RESEARCH | © 2021 CBRE, INC.

29

INVESTMENT - REVISIT

Disposals by developers

Sale leasebacks

Developers were net sellers in 2020, with many groups disposing of assets to repay debt or recycle capital for future investment. With this trend expected to continue in 2021, investors are advised to target developers in Singapore, Australia, Hong Kong SAR and Japan looking to repatriate capital.

The widespread disruption resulting from lockdown measures and other restrictions severely impacted business activity across the region in H1 2020. While these restrictions were gradually loosened in H2 2020, a resurgence in infections and the nascent stage of economic recovery are likely to encourage companies to unlock liquidity by monetising real estate assets via sale leaseback deals.

Debt repayment pressure will continue to compel developers in Mainland China to offload investment properties and development projects. The “Three red lines policy” requires developers breaching debt limits to lower their gearing ratio, essentially forcing them to explore other channels to generate capital. Several such developers have already raised capital by listing their property management arms or disposing of properties. The People’s Bank of China’s (PBOCs) recent move to cap bank lending for property development and mortgage loans will create additional challenges for Chinese developers to secure financing, leading to create private debt opportunities for non-bank lenders.

FIGURE 22: NET ACQUISITION VOLUME BY BUYER TYPE IN 2020 40

Australia and Japan will continue to account for the bulk of sale leaseback activity in 2021. In the latter, CBRE is aware of several high-end retailers looking to sell flagship assets with long term leases.

Selected companies in certain industries with liquidity needs, particularly the energy, industrial manufacturing, logistics freight forwarding, raw materials and commodities sectors, are likely to display a greater willingness to realise real estate value, such as by engaging in sale leaseback transactions.

TABLE 1: NOTABLE SALE LEASEBACK TRANSACTIONS IN 2020 City

Property Name

Transaction Volume (US$ mn)

Buyer

Seller

Industry

Sydney, Brisbane

Two distribution centres

123

LOGOS

Sigma Pharmaceuticals

Healthcare

Various cities in New Zealand

49% stake of 70 fuel and convenience stores

358

Charter Hall

BP

Energy

Melbourne

Two data centres

300

Centuria Industrial REIT

Telstra

Telecommunication

Sydney, Melbourne and Brisbane

Four logistics properties

426

Charter Hall JV Allianz

Aldi

Retail

Various cities in Japan

Four logistics properties

450

Prologis

Nippon Express

Logistics freight forwarding

US$ billion

20 0 -20 -40

Corporation

Private

Institutional

Disposal Volume

Net Acquisition Volume

Property Company

Acquisition Voulme

REIT

Property Fund

-60

Net acquisition = Acquisition volume – disposal volume Remarks: Transaction volume includes office, retail, industrial, hotel, mixed-use and other commercial properties.

Residential and development site are excluded.

Source: CBRE Research, January 2021.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

Source: CBRE Research, January 2021.

CBRE RESEARCH | © 2021 CBRE, INC.

30

INVESTMENT - REVISIT

Price dislocation in the public sector While real estate pricing in the unlisted market has held relatively firm since the onset of the pandemic, the listed market has offered investors opportunities to access value discounts. Although recent positive news around vaccine development has pushed up prices in selected public markets, there remain several Asia Pacific listed REITs that continue to trade below their Net Asset Value (NAV).

Several major office-focused REITs and multi-sector focused REITs listed in Japan and Australia possess good quality portfolios. In 2020, some REITs in these markets disposed of properties to realise asset value. Should their NAV remain at a discount, REIT managers may review portfolios and consider disposing of assets to repay debt or reinvest into other opportunities.

FIGURE 23: WEIGHTED AVERAGE NAV PREMIUM/DISCOUNT OF ASIA PACIFIC LISTED REITS^ BY SECTOR 80%

Premium

60% 40% 20% 0%

Discount

-20% -40% -60% -80% Niche* As of 30 Dec 19

Industrial

Residential As of 31 Mar 20

Office As of 30 Jun 20

Diversified As of 30 Sep 20

Retail

Hotel

As of 30 Dec 20

* Niche includes data centres, healthcare, senior housing, self-storage, agricultural and pubs. ^ The study covers REITs listed in Australia, New Zealand, Japan, Hong Kong SAR and Singapore Source: Capital IQ, company financial reports, CBRE Research, December 2020 ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

CBRE RESEARCH | © 2021 CBRE, INC.

31

INVESTMENT - REVISIT

REVIEW SECTOR POSITIONING With the pandemic having accelerated demand for sectors such as industrial and logistics, and causing significant disruption to others including retail and hospitality, CBRE believes 2021 provides an opportune moment for investors to review their positioning across key asset classes Office: Target the price correction in gateway cities While office demand will undoubtedly be impacted by the adoption of remote working, pressure to reduce office footprint is weaker in Asia Pacific compared other parts of the world. CBRE Asia Pacific’s Office Occupier Flash Survey found that while 46% of respondents expect a reduction in their office portfolio over the next three to five years, around 22% believe that they will increase their office portfolio over the same period. Investors appear to hold similar views, with half of

respondents to CBRE’s 2021 Asia Pacific Investor Intentions Survey stating that they expect office portfolios to contract by under 10% over the next three years.

CBRE recommends investors focus on gateway cities undergoing a price correction.

Potential targets include Hong Kong SAR, Shanghai, Sydney and Melbourne, where capital values are forecasted to decline by more than 10% from 2019 to 2021.

While rents are expected to remain under downward pressure in 2021, investors are advised to seek opportunities to acquire good quality office buildings before leasing activity picks up.

FIGURE 24: GRADE A OFFICE CAPITAL VALUE CHANGE BETWEEN 2019 AND 2021F 10% 0% -10% -20% -30%

Hong Kong SAR

Shanghai

Sydney

Melbourne

Shenzhen

Guangzhou

Beijing

Perth

Brisbane

Auckland

Singapore

Tokyo

Seoul

-40%

Note: For changes from 2019 to 2021F, it is the change between Q4 2018 and Q4 2021.

The capital value change is synthetic capital value growth Source: CBRE Research, January 2021.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

CBRE RESEARCH | © 2021 CBRE, INC.

32

INVESTMENT - REVISIT

Logistics: Upgrade ageing warehouses Respondents to CBRE’s 2021 Asia Pacific Investor Intentions Survey ranked logistics as the most popular sector for investment for the first time on record, indicating that logistics assets will remain keenly sought after in 2021. Strong capital inflows to the sector since the pandemic have narrowed the yield spread with the office sector to just 30 bps globally and 75 bps in Asia Pacific. With further logistics yield compression expected in 2021, the spread is set to narrow even further.

Robust investment demand is leading to intense competition for modern completed assets, of which supply is limited. Core investors are therefore advised to capitalise on logistic developers’ and logistics services end-users’ shift to asset light strategies to acquire high quality logistics portfolios.

CBRE also sees prospects for value added and opportunistic investors to identify well-located older warehouses with upgrading potential. With prices for completed assets continuing to rise, greenfield and brownfield development of modern logistics facilities offers an alternative entry route to capture additional alpha.

Growing demand for last-mile fulfilment is set to create opportunities to convert underused suburban malls into last mile logistics facilities. CBRE has already observed selected investors in Japan exploring such opportunities amid intense competition for logistics sites.

FIGURE 25: OFFICE AND LOGISTICS YIELD SPREAD OF MAJOR ASIA PACIFIC MARKETS* (%)

(%)

Spread (RHS)

Office

2020 Q4

2020 Q2

2019 Q4

2019 Q2

2018 Q4

2018 Q2

2017 Q4

2017 Q2

2016 Q4

2016 Q2

2015 Q4

2015 Q2

2014 Q4

2014 Q2

2013 Q4

2013 Q2

2012 Q4

2012 Q2

2011 Q4

2011 Q2

2010 Q4

2010 Q2

2009 Q4

2009 Q2

2008 Q4

2008 Q2

2007 Q4

2007 Q2

2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0

2006 Q4

8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5

Logistics

Note: *Major Asia Pacific markets include Beijing, Shanghai, Hong Kong SAR, Tokyo, Singapore and all Pacific markets Source: CBRE Research, January 2021.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

CBRE RESEARCH | © 2021 CBRE, INC.

33

INVESTMENT - REVISIT

Hotel and Retail: Identify countercyclical plays While hotel and retail properties have undoubtedly been hit hardest by the pandemic, investors should position themselves to prepare for a rebound in 2021 as the pandemic is contained, social distancing regulations are eased, and travel restrictions are loosened.

Asia Pacific hotel occupancy improved from 25% in April to 51% in November, supported by domestic visitors lured by staycation offers. However, regional and global travel remains highly restricted, with the International Air Transport Association (IATA) not expecting a full recovery in international travel until 2024.

With destinations dependent upon international and business travel taking longer to recover, investors should seek opportunities in markets with a large pool of domestic tourists, such as Japan, Mainland China and Australia. Recent hotel transactions in the latter have featured price discounts of 5% to 15%, while overall hotel prices in Asia have fallen from 2019 values within a range of 10% to 30%.

Although retail properties continue to face a long-term structural threat from the growth of e-commerce, CBRE believes that destination retail in Japan and Mainland China and neighbourhood retail in Australia offer attractive opportunities to investors willing to consider this sector.

Destination retail properties, which refer to shopping malls or developments hosting luxury stores, high-end dining and an upscale shopping experience, continue to attract affluent domestic shoppers and are performing well.

Neighbourhood retail developments’ proximity to and convenience for local residential catchments provide them with a strong advantage over e-commerce.

Experienced retail investors with extensive management expertise are advised to capitalise on current low valuations to acquire neighbourhood malls with potential for upgrading and placemaking.

FIGURE 26: MONTHLY HOTEL OCCUPANCY RATES ACROSS KEY ASIA PACIFIC MARKETS (NOVEMBER 2019 VS NOVEMBER 2020) 100% 80% 60% 40% 20% 0% Beijing

Shanghai

Hong Kong SAR

Tokyo

November 2019 Occupancy

Sydney

Mumbai

Seoul

Bangkok

November 2020 Occupancy

Source: STR, CBRE Research, December 2020.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

CBRE RESEARCH | © 2021 CBRE, INC.

34

INVESTMENT - REVISIT

Niche sectors: Form partnerships to access operational expertise Investor interest in niche sectors will continue to grow in 2021, with CBRE’s 2021 Asia Pacific Investor Intentions Survey indicating stronger interest in data centres and cold storage facilities.

While recent years have seen a steady increase in data centre investment, operational risk and securing planning approvals remain a challenge, prompting investors to form partnerships with experienced data centre operators to minimise exposure. CBRE advises investors to target second tier data centre operators seeking to expand their scale and capacity in order to become tier one operators.

Direct investment opportunities will also be available via disposals from telecommunication companies who look to monetize their assets.

Surging requirements for fresh food, medical products and upcoming vaccines will support robust demand for cold storage facilities. Food service distribution companies disposing of cold-storage facilities may offer opportunities to investors, while other entry routes include build to core and greenfield development owing to the continued shortage of modern cold storage facilities5.

FIGURE 28: 2016/2018 REFRIGERATED WAREHOUSE CAPACITY (CUBIC METER) PER URBAN CAPITA

FIGURE 27: DATA CENTRE INVESTMENT VOLUME IN ASIA PACIFIC 2,500

US$ million

2,000

1,500

1,000

500

Remarks: The cubes are for illustration only and are not in proportion to the actual capacity.

Source: Global Cold Chain Alliance (GCCA).

0

2016

2017

2018

2019

2020

5 Asia

Pacific Cold Storage – An Investor’s Guide, CBRE Research, 2019.

Source: RCA, CBRE Research, January 2021.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

CBRE RESEARCH | © 2021 CBRE, INC.

35

A P P E N D I X : F O R E C A S T R E N TA L G R O W T H A N D Y I E L D S I N 2 0 2 1 OFFICE

RETAIL

LOGISTICS

RENTAL GROWTH (%)

YIELD

RENTAL GROWTH (%)

YIELD

RENTAL GROWTH (%)

YIELD

Beijing

-3.3

►

2.8

►

3.6

▼

Shanghai

-3.9

►

3.5

►

3.0

▼

Guangzhou

0.0

▲

3.2

►

3.0

▼

Shenzhen

-2.1

▲

2.6

►

2.0

▼

Hong Kong SAR

-7.5

►

-12.5

►

0.0

▼

Taipei

1.7

▼

0.0

▲

-

-

Tokyo

-4.6

▲

-4.0

▲

1.1

▼

Seoul

0.9

►

-

-

1.0

▼

Singapore

1.4

►

-0.7

►

0.7

►

Bangkok

1.5

►

-

-

-

-

Ho Chi Minh City

0.8

-

3.6

-

2.8

-

Hanoi

-0.8

-

0.4

-

2.0

-

Manila Makati

-0.7

-

-

-

-

-

Jakarta

-0.6

▲

-

-

-

Sydney

-2.9

▲

0.6

▲

-0.8

▼

Melbourne

-5.1

▲

-3.5

▲

-0.3

▼

Brisbane

-1.6

▲

-0.8

▲

0.3

▼

Perth

0.9

▲

-1.7

►

1.5

▼

Auckland

-3.5

▼

-3.0

►

2.2

▼

New Delhi – Gurgaon

0.0

►

-

-

-

-

Mumbai ABD

-1.9

►

-

-

-

-

Bangalore ORR

0.9

►

-

-

-

-

MARKET

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Remarks (1) Office rental growth refers to Grade A offices in CBD areas only, unless specified.

(2) Retail rental growth refers to high streets in prime areas except China, Singapore, Vietnam, Australia and Auckland where G/F rents of shopping centres are reported. The rental outlook for Tokyo refers to Ginza high street rents while Singapore refers to prime retail along Orchard Road. Australia and New Zealand report the net effective rents of regional centres. Vietnam reports G/F rents of prime shopping centres.

(3) Logistics rental growth in Tokyo refers to the Greater Tokyo Area while Seoul refers to the Greater Seoul Area. Ho Chi Minh City represent the Southern Region which includes Ho Chi Minh City, Binh Duong, Dong Nai and Long An while Hanoi represents Northern Region which includes Hanoi, Bac Ninh, Hung Yen, Hai Duong and Hai Phong Logistics rental growth for Asian markets refer to face rents while Pacific markets refer to effective rents.

Source: CBRE Research, January 2021.

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

CBRE RESEARCH | © 2021 CBRE, INC.

36

C O N TA C T S

Regional Research Henry Chin, Ph.D. Global Head of Investor Thought Leadership Head of Research, Asia Pacific henry.chin@cbre.com.hk

Ada Choi, CFA Head of Occupier Research, Asia Pacific Head of Data Intelligence and Management, Asia Pacific ada.choi@cbre.com.hk

Jonathan Hills Senior Director, Asia Pacific jonathan.hills@cbre.com.hk

Cynthia Chan Office Specialist, Asia Pacific cynthia.chan@cbre.com.hk

Liz Hung Retail & Logistics Specialist, Asia Pacific liz.hung@cbre.com.hk

Leo Chung, CFA Capital Markets Specialist, Asia Pacific leo.chung@cbre.com.hk

Marcos Chan Head of Research, Hong Kong marcos.chan@cbre.com.hk

Claire Choi Head of Research, Korea claire.choi@cbre.com

Dung Thuy Duong Head of Research, Vietnam dung.duong@cbre.com

Abhinav Joshi Head of Research, India, Middle East & North Africa abhinav.joshi@cbre.co.in

Rathawat Kuvijitrsuwan Head of Research, Thailand rathawat.kuvijitrsuwan@cbre.co.th

Ping Lee Head of Research, Taiwan ping.lee@cbre.com

Zoltan Moricz Head of Research, New Zealand zoltan.moricz@cbre.co.nz

Hiroshi Okubo Head of Research, Japan hiroshi.okubo@cbre.co.jp

Desmond Sim Head of Research, Singapore and Southeast Asia desmond.sim@cbre.com.sg

Bradley Speers Head of Research, Australia bradley.speers@cbre.com.au

Sam Xie Head of Research, China sam.xie@cbre.com

Garri Amiel Guarnes Philippines Research

James Hodge Cambodia Research

Local Heads of Research

Martin Samuel Hutapea Indonesia Research

Aziah Mohd Yusoff Malaysia Research

ASIA PACIFIC REAL ESTATE MARKET OUTLOOK 2021

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A S I A P A C I F I C R E A L ES T A TE MARKET OUTLOOK 2021

CBRE RESEARCH This report was prepared by the CBRE Asia Pacific Research Team, which forms part of CBRE Research – a network of preeminent researchers who collaborate to provide real estate market research and econometric forecasting to real estate investors and occupiers around the globe.

All materials presented in this report, unless specifically indicated otherwise, is under copyright and proprietary to CBRE. Information contained herein, including projections, has been obtained from materials and sources believed to be reliable at the date of publication. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. Readers are responsible for independently assessing the relevance, accuracy, completeness and currency of the information of this publication. This report is presented for information purposes only exclusively for CBRE clients and professionals, and is not to be used or considered as an offer or the solicitation of an offer to sell or buy or subscribe for securities or other financial instruments. All rights to the material are reserved and none of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party without prior express written permission of CBRE. Any unauthorized publication or redistribution of CBRE research reports is prohibited. CBRE will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on information in this publication.

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