Sydney Emerges as a Top Destination in Asia Pacific for Cross-border Real Estate Investment in 2022: CBRE Survey

28 January 2022

Sydney has jumped from 8th to 4th position as a preferred destination for cross-border investment according to the findings of CBRE’s annual Asia Pacific Investor Intentions Survey. 

The survey, which covers all asset types, found that a majority of investors (60%) intend to make more acquisitions this year, with the appetite strongest among Australian, Singaporean, Korean and Japanese investors.

Tokyo retained its position as the leading cross border investment destination for the third year running, followed by Shanghai, Singapore and Sydney.

“Sydney’s resurgence has been driven by improving office fundamentals, with declining incentives set to spur effective rental growth. An undersupplied logistics sector struggling to meet rising e-commerce demand has been another draw for investors eyeing Sydney investment opportunities,” said Mark Coster, CBRE’s Head of Capital Markets, Pacific.

Mr Coster said the survey responses pointed to Asia Pacific commercial real estate turnover increasing by 5-10% this year, with Australia being close to the upper end of that range. 

Overall, Australian domiciled investors have a Net Buying intention (intention to buy vs intention to sell) of +27%, reflecting ample liquidity and potentially a tilt towards real estate in asset allocations.

Sameer Chopra, CBRE’s Head of Research, Pacific, noted, “Yields are now at record lows and with rising bond yields, future returns are expected to be driven by rental increases. We expect that in search of higher yields, investors will pursue value-add opportunities, such as upgrading older office assets to meet ESG mandates; core-plus investments; or acquiring prime assets with shorter Weighted Average Lease Expiries (WALEs) to negotiate more competitive rents.”

CBRE’s survey also revealed additional insights that are likely to shape real estate investment in 2022:

While Logistics still preferred, investors return to office sector

While logistics continues to be the preferred Asia Pacific investment sector (36%), interest has softened (down from 44% in 2021) as more investors question whether pandemic-led demand growth can be sustained. More investors are shifting their sights to office assets (31% in 2022 vs 26% previously) on a more optimistic outlook for leasing demand after the introduction of hybrid working was found to have only a negligible impact on brick-and-mortar office requirements. There has also been a compression in the yield spread between the two sectors from ~90bps in 2020 to ~40 bps, as well as a marked increase in the number of investors who expect demand for physical offices to increase by up to 10% in the coming three years.

“Anecdotally, in Australia, we’re seeing this amongst tenancies which are sub 5000sqm. Small & Medium sized enterprises, alongside Government, have been the growth engines of office demand in 2021,” Mr Chopra said.

Cold storage and healthcare gain momentum as alternatives, real estate debt loses shine

Among alternative assets, data centres continue to be the top focus (41%), while demand for cold-storage (35%) and healthcare (31%) is expected to strengthen further. Pandemic-driven structural changes have put cold storage and healthcare properties in the sights of investors as life sciences companies continue to perform well. Real estate debt, one of the more popular alternative sectors among investors, has fallen out of favour in this year’s survey. All signs point towards ongoing debt-related difficulties faced by mainland Chinese developers as a likely reason. 

Growing appetite for ESG investing

More investors (56%) have already adopted or are integrating environmental, social and governance (ESG) criteria into their investments, including prioritising the purchase of buildings with green certification and retrofitting existing properties to enhance resource efficiency. To finance upgrades for existing properties, developers, REITs and fund managers are increasingly turning to green financing.