China Reopening Set to Boost Asia-Pacific Multifamily; Hospitality Sectors

With the news that China has lifted travel bans, travelers from across the globe are gearing up to visit the country and provide a welcome cash injection for the Chinese tourism industry. At the same time, the greater Asia-Pacific (APAC) area is getting ready to receive an influx of Chinese nationals as they flock to neighboring countries for business and leisure.

While that’s good news on a number of economic levels, it’s also a tailwind for the APAC commercial real estate (CRE) industry. And, according to recent reports across the region, the two sectors that are anticipating the biggest benefits are multifamily and hospitality.

Apartment sales are on the up

Multifamily sales in Singapore, for example, are expected to improve, with some analysts anticipating a “more than 10% increase in the number of homes purchased by Chinese this year” in the city-state.

A recent article in the Australian Financial Review (AFR) adds that another possible effect of China’s reopening is an uptick in Australian apartment sales. AFR says: “At a time of little new apartment supply, Australia’s residential developers will benefit from returning demand from returning foreign migrants.”

AFR notes that luxury apartments in particular are likely to see elevated sales but states that overall Australia is “lower down the list of countries to directly benefit from China’s reopening.”

Tourism and hospitality boost

Countries like South Korea and Japan are expecting a bigger boost, especially from the tourism and hospitality sectors. Likewise in Thailand, hospitality is gearing up for a major influx of Chinese tourists, with Thai Deputy Prime Minister, Anutin Charnvirakul, stating:

“The arrival of tourists from China, as well as from countries around the world to Thailand is expected to increase continually. This is a good sign for Thailand’s tourism sector,” adding “…it will accelerate the economic recovery after our suffering from the Covid-19 pandemic for three years.”

The reopening is also a positive signal for the hospitality sector in many other South-East Asian countries, which have battled low hotel occupancy and slow revenue recovery over the last three years.

Worth noting, however, is that some APAC countries have introduced restrictive new travel policies regarding Chinese nationals, including Covid testing requirements, which could act as a headwind to recovery.

Economic ‘silver lining’

At the start of a year where murmurings of recession have kept economic prospects largely subdued, China’s reopening is a strong positive signal for the global economy.

As a recent Bloomberg article quoted in the Japan Times puts it:

“China’s sudden reopening is set to offer a boost to a flagging world economy. The growth impulse will be felt through services sectors such as aviation, tourism, and education as Chinese people pack their bags for international travel for the first time since the pandemic.”

Advertisement

What’s happening in… Hamilton, NZ?

New Zealand’s city of Hamilton – or Kirikiriroa in Maori – sits on the banks of the famous Waikato River which features heavily in its sights and site. In this city known for its beautiful greenery and walks, the most popular tourist attraction is the 54-hectare Hamilton Gardens.

With a population of just under 200,000 people, Hamilton is the fourth most populous city in the country. In 2020, it was named ‘most beautiful large city in New Zealand’. The wider Hamilton Urban Area includes Ngāruawāhia, Te Awamutu, and Cambridge, which collectively cover some 110 square kilometers of land. It is also the third fastest-growing urban area.

Leading industries and outputs

Hamilton’s economic heritage is as an agricultural services hub, particularly dairy cattle, and vegetable farming, but it also has thriving business services, construction, and health and community services. Additionally, R&D is an emerging sphere, given the city’s high tertiary educated population.

Residential market factors

New Zealand has typically seen high demand and low supply for residential housing in recent years which has kept prices elevated. There are, however, some movements in the markets, and new regulations around lending coming into play that could mean fewer residential buyers would qualify and those that do could be in for “bargains” in 2022 – according to a January 2022 report from Stuff.co.nz citing Mortgage Lab chief executive Rupert Gough.

Additionally, Realestate.co.nz recently reported new house listings in November 2021 were hitting their highest level in seven years, and Stuff.co.nz added that data from Infometric showing consent and permissions for new build projects were also much increased, compared year on year.

The latest CoreLogic Home Price Index (HPI) report shows that property values have declined in Hamilton, where housing values were down 0.9% in March.

Commercial property outlook

New property rating valuations from Hamilton City Council – released in April 2022 – put the city’s worth at NZ$ 71.4 billion.

Our Hamilton reports that the city’s “total property Capital Value (the total value of the land and any buildings on it) increased 53%, and Land Value 67% since 2018”. “On average,” the article continues, ‘Capital Values for commercial and industrial property have increased by 40% across the city”.

Insight from NAI Harcourts in the country suggests that industrial will remain “the darling of the three commercial property sectors”, but also that there is momentum in the Hamilton office market, which they characterized as coming from a “flight to quality” that was pushing local business in the central business districts to up their game.For more regional insight, contact NAI Global’s partners in Hamilton and surrounds.

Report says CRE leaders expect post covid resurgence

In May, law firm DLA Piper released the 2022 edition of their Annual State of the Market Survey report, highlighting that “optimism about the future of commercial real estate (CRE)” remains strong despite the headwinds the industry faces.

The survey on which the report is built was conducted in February and March of 2022, by collating and analyzing input from CRE leaders and professionals in the US – specifically their take on matters including “pandemic recovery, economic outlook, attractiveness of investment markets and overall expectations over the next 12 months”. This input is further contextualized with additional research, presented the report.

Highlights

Overall, the report [PDF] shows “increased bullishness”, with “more respondents in 2022 [having] a higher level of confidence for the real estate industry’s next 12 months”.

Findings from the report also include that 73 percent of respondents are “expecting a bullish market”. This is consistent with 2021 expectations. “However,” they added, “this year, respondents reported feeling a higher level of confidence in a bull market over the next 12 months; 33 percent described their bullishness as an 8 or higher in 2022, compared to just 16 percent in 2021.”

Top contributing reasons include the apparent availability of capital in the market, with over half of the respondents citing this as the main source of their confidence.

Viewed per sector, Commercial Property Executive says in their analysis of the report, “Industrial (66 percent) and multifamily (57 percent) remain the property types that investors believe offer the best risk-adjusted returns over the next 12 months.”

Shaping CRE

Inflation and interest rate changes were ranked most likely to have an impact specifically in the CRE market in the coming year, but ecommerce, migration of workers out of city centers, and the “redesign/reimagining use of office and other commercial spaces” were also common responses.

Concerns remain

Top concerns included interest rate increases (cited by 26 percent of respondents), inflation (18 percent), as well as the Russian invasion of Ukraine.

US gains and advice

Finally, respondents to the survey said they felt the US would be seen as a safe and stable option, attracting non-US investment. “During times of uncertainty – like the pandemic or the conflict in Ukraine — investors often flock to safe havens,” the report reads, adding “a well-defined legal system, transparency and proven economic resiliency” are among the US’s assets.  

In the face of global uncertainty though, the report authors caution that CRE professionals and firms must “remain agile and prioritize adaption, with an eye towards staying ahead of the curve”.

SOCIAL: Do you see the US CRE market as a safe haven in times of global uncertainty? How do you expect inflation to make itself known in your CRE specialty?

New MIT think tank focuses on sustainable Asian real estate

According to a recent article by the Massachusetts Institute of Technology (MIT), things are moving fast in the Asian real estate market. More specifically, MIT outlines that: “Every 40 days, a city the equivalent size of Boston is built in Asia.”

And while this means exciting development prospects for anyone involved in Asian commercial real estate (CRE), it also means that sustainability, and an innovative approach to growth, are becoming ever more important.

With those issues in mind, MIT’s Center for Real Estate (MIT CRE) recently launched the Asia Real Estate Initiative (AREI), with the goal of “connecting sustainability and technology in real estate.”

Addressing climate issues through innovation

During 2021’s United Nations Climate Change Conference, the real estate sector was identified as a key target for reducing global emissions, and one of the sectors Asian governments are aiming to transform to meet environmental targets.

Zhengzhen Tan, director of AREI, puts it like this: “One of the most pressing calls is to get to net-zero emissions for real estate development and operation.”

As a part of that goal, AREI is focusing on research across three main themes:

• The future of real estate and live-work-play dynamics;
• Connecting sustainability and technology in real estate; and
• Innovations in real estate finance and business

Tan points out that the choices investors and developers make in the region now will “lock in environmental footprints” for the next decade and adds: “We hope to inspire developers and investors to think differently and get out of their comfort zone.”

Sustainability in mind in 2022

The initiative comes in the midst of a strong recovery trend for Asian CRE markets, with PwC’s Emerging Trends in Real Estate® Asia Pacific 2022 report noting that: “Transactions are rebounding after nearly two years of lockdowns and travel embargoes.” The report also adds, however, that the investment landscape in Asia has changed, particularly in terms of how different real estate assets are used.

One of the key trends highlighted in the report is a move towards renovating buildings to change usage or upgrade their environmental performance to a higher standard.

Speaking to the impact AREI is expected to have on this developing landscape, faculty director of MIT CRE and AREI faculty chair, Professor Siqi Zheng, had this to say: “The research on real estate sustainability and technology could transform this industry and help invent global real estate of the future.”

He adds that merging tech and real estate can help developers build out strategies that are “green, smart, and healthy.”

Global climate concerns

In the coming years, it’s likely CRE will see a larger global shift towards these types of sustainability initiatives as developers and investors become more environmentally conscious, and aim to address climate change challenges. For the savvy CRE professional, it’s a space worth keeping a sharp eye on as we move to make green initiatives part of the broader real estate picture.

Multifamily debt data reaches new record at end 2021

Recent data from the Mortgage Bankers Association’s (MBA) latest Commercial/Multifamily Mortgage Debt Outstanding report shows that the level of outstanding debt on commercial/multifamily mortgages – during the final three months of 2021 – was $287 billion (7.4 percent) higher than the level seen at the end of 2020.

Report frequency

The MBA releases this data on a quarterly basis and this provides a snapshot of debt and market health at the time. Released at the end of March 2022, this report focuses on the last quarter of 2021 – and compares figures to the preceding quarter and the corresponding quarter of the previous year.

For the purposes of this research, the four major investor groups considered include: “bank and thrift; commercial mortgage-backed securities (CMBS), collateralized debt obligation (CDO) and other asset-backed securities (ABS) issues; federal agency and government-sponsored enterprise (GSE) portfolios and mortgage-backed securities (MBS); and life insurance companies”.

Their data shows that “total mortgage debt outstanding rose by 2.9 percent ($116.0 billion) in fourth-quarter 2021” and specifically that “multifamily mortgage debt grew by $42.1 billion (2.4 percent) to $1.81 trillion during the fourth quarter, and by $121.9 billion (7.2 percent) for the entire year”.

Understanding the data

MBA’s Vice President of Commercial Real Estate Research Jamie Woodwell commented: “Strong borrowing and lending backed by commercial and multifamily properties drove the level of mortgage debt outstanding to a new high at the end of 2021.”

This was evident in every major capital source, he said, adding: “The 7.4 percent annual increase in outstanding debt compares to a 19.5 percent increase in underlying property values.”  

As Yield Pro points out in their analysis, government-sponsored enterprises (GSE) “continued to have the largest share of multifamily mortgages outstanding”.

In related material, MBA confirmed that commercial and multifamily mortgage delinquencies in the US also declined in Q4 2021, characterizing the rates as “down or flat for every major investor group”.