Emerging Trends in Real Estate® Asia Pacific 2024

The series of quick-fire rate hikes initiated by the US Federal Reserve in mid-2022 has marked an end to the era of low- interest-rate investing in place since the global financial crisis in 2008. Higher interest rates are simply a reversion to the mean, returning the cost of capital to historical norms. At the same time, however, in a market habituated to abundant supplies of cheap debt, rising rates represent a sea change in how investors underwrite deals. These impacts have been felt across the real estate sector in several ways:

Higher interest rates lead to asset revaluations.
Many investors have moved to the sidelines.
Traditional asset classes lose their shine.
Investors are pivoting to alternative assets.
Transition risk comes to the fore.

This forecast will give readers a heads-up on where to invest, which sectors and markets offer the best prospects, and trends in the capital markets that will affect real estate.

A new landscape in Singapore

While revaluations in the Asia Pacific are unlikely to be as steep as in the West, there remains little clarity on where values will eventually settle. The causes are not simply economic but also involve structural changes in future demand for space. The ongoing influx of multinational companies looking to establish operations in Singapore has led to tight bid-ask spreads for prospective deals in the office sector.

Transformation of real estate development

High vacancy rates in most CBDs have now turned this into a zero-sum game, where buildings are unable to compete in terms of location, or facilities lose out. Residential conversions have obvious appeal in the Asia Pacific, given chronic shortages of housing stock, especially in city cores. Singapore, for example, has initiated a CBD Incentive Scheme, whereby developers receive an additional 25 to 30 percent of developable area for conversion of office buildings older than 20 years to residential or hotel purposes.

Data centres and energy efficiency

One aspect of market dynamics that changed significantly in 2023 was geographic. Japan and Australia dominated data centres in the previous two years, the focus has now shifted towards emerging markets, in particular India and Southeast Asia (Singapore excepted).

The Singapore government has approved construction of ocean-based data centre modules which can reduce energy needed for cooling purposes by as much as 97% – are now coming of age, and will be widely adopted by newly constructed data centre projects.

Real estate capital flows

Of the two remaining top-ranking cities, Sydney and Melbourne, investors continue to see Singapore as a viable core market given limited supply, booming demand for space, and prospects for rental growth that are among the highest of any Asia Pacific city.