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HONG KONG / SINGAPORE (6 December 2022) – Shanghai is likely to enjoy an upbeat economic outlook in 2023, with higher growth rates as compared to Hong Kong, Singapore, Tokyo, Seoul and Sydney, according to the Urban Land Institute (ULI) 2022-2024 Real Estate Economic Forecast for the Asia Pacific region. Shanghai’s GDP is predicted to grow to 6.85%, well above the growth estimates of other Asian peers ranging between 1.00% and 2.00%.

While inflationary pressures are expected to remain in the short-term, inflation in the Asia Pacific region has proved to be relatively more manageable compared to Europe and North America. Inflation rates in China and Hong Kong are at, or below the 10-year average, and are likely to remain so over the near-term. Historically low borrowing rates in Japan have caught the attention of investors, hence making Japan an attractive investment market in the new year. Australia, however, is an exception to this trend, with rising food, fuel and construction costs forecasted to drive inflation to 6.5% going into 2023.

David Faulkner, President of ULI Asia Pacific, said: “Economic growth in Asia has been rather mixed in 2022 against the global backdrop of heightened geopolitical tensions, inflation, financial market volatilities, and supply chain disruptions. A subdued economic outlook is likely to continue into 2023.  However, the real estate sector is expected to remain resilient, and withstand external shocks due to the measured approaches being adopted by policymakers in the region.”

Office capitalisation rates are likely to rise across the region in 2023, as buyers face increasing costs of debt servicing. The office sectors in Shanghai, Seoul and Sydney are expected to record capitalisation rates of 4.65%, 4.30% and 5.0% respectively in the new year, presenting higher risks for investors. The outlook for 2024 is more mixed, with rates continuing to increase in Hong Kong and Shanghai while staying flat in Singapore and Seoul, and falling in Tokyo and Sydney.

With the influence of occupier market conditions, returns in the office sector are forecasted to be mixed over the near-term. Returns will be more resilient in markets where occupier conditions favour the landlord, such as in Seoul, Singapore and Sydney. On the other hand, returns are expected to be negative in Hong Kong, Shanghai and Tokyo, where the outlook favours tenants. The office sector in markets with higher supply volumes and rising vacancy rates, such as Shanghai and Tokyo, are expected to record a decline in rent. Meanwhile, Singapore and Seoul – faced with limited supply volumes, more robust demand and tighter vacancy rates – can look forward to positive rent growth.

Observed stability in industrial returns could be a result of the offset of large supply volumes by strong occupier demand. Singapore and Shanghai are likely to see strong demand for warehouses – contributing to the growth of the rent and the logistics sectors. With landlords pegging rental escalation clauses to the consumer price indexes (CPIs) of the markets, warehouse rents could witness an increase.

On the retail front, there are expectations for an increase in footfall and retail sales to pre-pandemic levels in 2023, which could potentially raise rent levels. The region’s retail sector is also poised for recovery over the next two years, supported by the return of physical retail due to the easing of travel restrictions and pandemic-related lockdowns.

The semi-annual ULI Real Estate Economic Forecast’s findings are based on a forecast survey from economists and analysts at nine leading real estate organisations, including AEW, Colliers, Cushman & Wakefield, Heitman, JLL, Oxford Economics, Nuveen Real Estate, Phoenix Property Investors and Schroders Capital. It is also based on historical data provided by JLL and Oxford Economics. The report takes a deep dive into the three-year forecast for key economic and real estate data points for six major regional markets: Hong Kong, Singapore, Shanghai, Tokyo, Seoul and Sydney, as well as additional indicators for China, Japan, South Korea and Australia.

The ULI Real Estate Economic Forecast, Asia Pacific is available here for member-access.

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About the Urban Land Institute
The Urban Land Institute (ULI) is a non-profit education and research institute supported by its members. Its mission is to shape the future of the built environment for transformative impact in communities worldwide. Established in 1936, the Institute has more than 45,000 members worldwide representing all aspects of land use and development disciplines. For more information on ULI, please visit uli.org or follow us on Twitter, Facebook, LinkedIn and Instagram.

ULI has more than 2,600 members in the Asia Pacific region. For more information on ULI Asia Pacific, visit asia.uli.org or follow us on Facebook, Instagram, LinkedIn and Twitter.