International consultants poll: Promising outlook for property market in 2022

This article first appeared in City & Country, The Edge Malaysia Weekly, on December 27, 2021 - January 09, 2022.
In Manhattan, a return to growth, particularly in the prime segment of the market, has been witnessed throughout 2021

In Manhattan, a return to growth, particularly in the prime segment of the market, has been witnessed throughout 2021

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It has been two years since the outbreak of Covid-19. Countries are reopening their borders as the world is adapting to the new normal and dealing with the crisis, on the back of improving vaccination rates around the globe.

Despite the pandemic, some countries have seen strong growth in their real estate markets, particularly in the industrial and residential segments. As workers gradually return to work, the office space in some markets is seeing improved momentum. As for the retail and hotel segments, the markets are expected to slowly recover.

We asked property consultants about how some of the key real estate markets around the world have performed in 2021 and their outlook for 2022. Read on to find out.

The Australian property market has performed strongly in 2021, led by extraordinary growth in the industrial sector, which has seen capital values rise 18% on average over the past year, contributing to an average total return of 24%.

Industrial property has benefitted from a step-change in occupier and investor demand, with logistics businesses and retailers seeking to scale up and upgrade their space due to the acceleration of e-commerce and the related desire to boost inventory levels. This structural tailwind has boosted investor demand and as major institutions and private companies seek to raise their portfolio allocation for industrial properties. This, in turn, has generated significant yield compression.

Meanwhile, the office sector has been resilient and returned to growth, with capital values rising 3% on average despite lengthy lockdowns in Sydney and Melbourne weighing on market sentiment. Investors have retained their confidence in the long-term outlook for Australian offices, and yields have been compressed in all markets during 2021 in response to the low interest rate environment.

The retail sector has been most impacted by the pandemic, and saw capital values decline 14% in 2020, but the market has now stabilised and the latest data shows a return to growth in the third quarter of 2021.

Looking ahead, pent-up consumer demand is expected to drive a renewed economic recovery and this will feed through to rising business sentiment, creating a favourable backdrop for property. The industrial sector is expected to continue performing well but the driver of growth is now shifting away from yield compression and towards rental performance, with multiple drivers pointing to growth. This will be led by Sydney and Melbourne, but Brisbane, Perth and Adelaide are not far behind and will also see a strong uplift.

The office sector is poised to benefit from improving sentiment in the leasing market. After a prolonged period of subdued activity, the stage is set for the release of pent-up demand, which will help boost absorption rates and drive market recovery in 2022. This recovery will take place notwithstanding the ongoing debate on workplace dynamics, and while there is no evidence of widespread downsizing, these pressures will mean that absorption is unlikely to rebound quite as strongly as it had in previous recoveries in the early 1990s and post-global financial crisis period.

Outside of the traditional sectors, investors are continuing to shift their investment allocations towards operational real estate such as data centres, medical facilities, build-to-rent, seniors housing and student accommodation. However, with limited established stock, the rotation is largely occurring through build-to-core strategies, led by build-to-rent. Multiple large-scale developments are now underway and plans continue to take shape for a sustained pipeline of activity across the country, with Melbourne emerging as the focal point for new activity.

Residential markets were very strong in 2020 and as a consequence, a number of policies were introduced towards the end of the year at national and local level to cool markets. These had their desired effect in 2021, with price growth slowing, especially in 2H2021, and volumes moderating.

Given the overall financing and policy environment at the moment, it would be difficult to forecast strong price growth. On the other hand, end-user demand in leading cities remains firm, with job creation and lifestyle factors continuing to pull in talent. The coming year is likely to prove relatively flat as a consequence, with the potential for a slight pickup in the second half depending on policy and financing policy.

In the last couple of years, in addition to the more mainstream commercial markets, the logistics segment has garnered a lot of attention from investors. This segment is likely to remain a key sector in the coming years given the structural growth drivers, a need for capacity upgrading and quality in key consumer markets as well as the emergence of the real estate investment trust (REIT) market targeting infrastructure (including logistics). Other segments could include data centres, life sciences and multifamily, though these are small immature markets and will not account for a notable share of the total deal volumes.

There is encouragement for certain sectors that are aligned with new economy industries, such as business parks. The main challenge will be the financing environment as well as the ample supply in certain markets.

Singapore’s property market has remained resilient with home prices continuing to climb amid buoyant liquidity, an improving economy and strong upgrader demand. Prices for private residential properties have risen for the sixth consecutive quarter. Led by the landed segment, overall prices rose 5.3% in the first three quarters of 2021, following 2.2% in 2020. The investment market has done very well in 2021 with total investment sales of S$17.9 billion (RM55.3 billion) so far, surpassing the S$13.1 billion for the whole of 2020.

The residential segment has been Singapore’s best-performing real estate sector in 2021. Transaction volumes have remained robust and prices have stayed on an upward trend. We have observed trends firming up such as buyer preference shifting to larger and more flexible living spaces in suburban areas, as well as increasing rental demand generated from the delays experienced in the construction sector.

The industrial sector has also performed well in 2021. Structural changes arising from the pandemic such as e-commerce and food delivery have especially benefitted the logistics and warehouse subsectors. Prices and rents of industrial space have remained relatively stable for 2021, with a higher-than-average supply pipeline balancing off with improved demand.

In line with the Ministry of Trade and Industry’s upgraded forecast of a 6% to 7% growth for 2021, we expect the economy to continue growing alongside improving business sentiment as we move into 2022. We expect the investment market to outperform 2021’s performance as business travel picks up. Barring government cooling measures, both launch and sale activities in the residential sector should remain robust in 2022. We also expect the introduction and adoption of more digitalised processes for the sector, as well as more foreign buyers’ transactions as border controls ease further.

The office sector has the potential to shine in 2022, as institutional investors ride on the expected market recovery. Technology and co-working operators continue to drive the demand due to the keen interest in expanding their office space. Furthermore, the tight office supply will support occupancy and rents. We see the Grade A sector leading the rent recovery going into 2022.

The industrial sector is expected to see further growth moving into 2022, with the manufacturing sector projected to see robust growth, driven largely by the electronics and precision engineering clusters on the back of strong semiconductor and semiconductor equipment demand. We expect prices and rents of high-quality industrial spaces are likely to grow moderately in 2022.

We expect the retail and hospitality sectors to improve in 2022, against the backdrop of improving vaccination rates, reopening of borders and easing of safe management measures. Retail rents and occupancy rates could bottom out in 2022 as the retail sector gradually recovers. With the hospitality sector’s recovery largely reliant on international visitors, the success of the Vaccinated Travel Lane (VTL) scheme and further easing of travel restrictions are critical to the sector’s performance in 2022.

The evolving Covid-19 situation with supply chain disruption and foreign labour scarcity will continue to impact business and sentiments. Nevertheless, we believe the downside is limited with the improving economic climate and as normalcy returns amid an endemic Covid-19 era. As Singapore continues to expand its VTL scheme, we expect the country to reclaim its status as a global business, travel and talent hub, boosting the property market’s growth.

In the first nine months of the year, the housing markets in Hanoi and Ho Chi Minh City were affected by Covid-19 and the business plans for many projects were delayed as a result.

In Ho Chi Minh City, only two projects opened for sale in the third quarter via online platforms. The total supply in nine months reached nearly 7,500 units, dropping more than 35% compared with 2020 and the lowest in the past three years.

Ho Chi Minh City also welcomed products in the high-end segment, namely branded residences with a price of about US$14,000 per sq m. Demand in Ho Chi Minh City also decreased slightly but in general, the selling rate and absorption rate were still quite high.

In Hanoi, the situation is a bit better, thanks to the infrastructure system. In the first nine months of the year, the supply grew slightly with 12,000 apartments, up 7% from last year. The main supply comes from large urban projects in the western and eastern part of the city.

In 2022, the supply in Ho Chi Minh City will improve with many new projects of domestic and foreign developers compared with 2021. Due to scarcity of urban land bank, new projects in the mid-end segment will mainly focus on the east and suburban districts. The CBD land bank will be prioritised for luxury and high-end housing projects. House prices are expected to maintain an average growth momentum of 3% to 7% in 2022.

In Hanoi, abundant new supply will come from large projects from suburban areas, thanks to a large land bank. Hanoi’s infrastructure system is the strength of its housing market, connecting the central area and the surrounding areas. As a result, developers have become more confident in developing large-scale projects outside the centre with diverse utilities and large green space.

Real estate prices in Hanoi are not as volatile as those in Ho Chi Minh City, but prices are expected to increase 1% to 3% year-on-year. With the abundant supply next year and the strong demand, house prices in Hanoi will increase slightly in 2022 from 2021.

House prices in Ho Chi Minh City are expected to see an average growth momentum of 3% to 7% in 2022

Industrial real estate is the brightest segment compared with other segments in the real estate market. The shift of production from China as well as a series of free trade agreements signed have increased the demand for industrial land across the country. New industrial parks have been planned or built throughout the northern, central and southern provinces to meet this demand. That led to a boom in the industrial real estate market despite Covid-19. Factory, warehouse and logistics services are also very promising with the e-commerce momentum.

For individual investors, residential real estate in the suburbs of Ho Chi Minh City and Hanoi is a segment worth considering in 2022. Specifically, products with reasonable prices and quality living space and utilities will be reasonable choices for long-term investment.

The Vietnamese market still has many points to overcome to increase its competitiveness compared with other markets in the region, such as its infrastructure system, logistical costs, administrative procedures, regulations and laws. If these issues are resolved, the Vietnamese market will attract major investors.

The government of Vietnam is still focusing on infrastructure development and promoting public investment strongly. The total public investment capital of VND2.87 quadrillion for the 2021 to 2025 period is expected to reach 95% disbursement, higher than the 75% during the 2016 to 2020 period. This is a huge motivation for the property market.

Across Phnom Penh, the real estate market has trended down moderately during 2021. While the direct impact of Covid-19 increased markedly in the early part of the year compared with 2020, much of the impact from reduced foreign demand had already been baked into 2020’s results.

Condominium developers have been offering attractive discounts and improved payment plans, however, rents remain keenly susceptible to downward movement on the back of supply growth. Landed residential markets have had a quieter year, while office and retail spaces have seen reasonable take-up, but rents remain soft due to oversupply issues. 

The Siem Reap market (home of Angkor Wat) has suffered considerable impact from the sustained lack of tourism, with many hotels closed and employment opportunities reduced. However, a wholesale reset in prices means that Siem Reap is now looking well placed to take advantage of opportunities to recapture visitors as the country reopens, as well as a push towards diversification of its economy.

We still take a cautious approach to forecasting in 2022. The optimism of early 2021 has been tempered by experience and greater visibility of the structural challenges facing the established commercial and residential markets in the capital. As such, we forecast that 2022 will remain subdued in terms of pricing and rental performance. However, activity levels among international investors may again pick up, with demand focused on cheaper but still strategically located assets that can be banked for later. 

Activity is also likely to be greater in less traditional sectors such as industrial and logistics, healthcare and education. The hospitality industry is already starting to show signs of a new development push, especially in central Phnom Penh, with the focus centred on building for branded operators.

I believe that with the fundamental improvements we are witnessing in Cambodia’s infrastructure, the industrial and logistics markets will be the most attractive next year. Well-located and well-priced parcels on the edge of urban areas are likely to fare well for the development of affordable housing projects aimed at the rising lower-middle class. Traditional sectors for foreign investment, including the mid-range and high-end condominium market, are likely to remain pretty sluggish, at least for the first six months of the year. Leasing in the commercial markets will likely pick up following the realignment of rents that is ongoing, but the volume of supply to be delivered will mean widespread rental growth will not return for some time.

Cambodia’s strength in rolling out its Covid-19 vaccination programme has been exceptional, but the risk of further issues remains due to lack of healthcare capacity. If the vaccines can contain the coronavirus and travel resumes, we expect some more momentum in the sale of land parcels for industrial and affordable residential development, as well as for strategic land banking. Our research indicates that a situation in which funding becomes more scarce has the most potential to act as a drag on market momentum. However, due to the dynamics of the domestic banking sector, we believe this is more likely to be contained to the financing of construction, rather than mortgage lending. 

The Covid-19 pandemic has  continued to pose challenges for much of the Greater Jakarta real estate market in 2021. However, it has not been all doom and gloom as some sectors have proved to be resilient amid the pandemic.

Large-scale social restrictions resulted in relatively weak net absorption for office space. However, towards the end of the year, the volume of enquiries for office space started to pick up slightly, although tenants continue to implement cost-saving strategies.

The retail market was also challenging as shopping malls were restricted in their capacity to operate. Meanwhile, demand was still subdued for the condominium market as buyers remained highly cautious due to the pandemic. On the other hand, some sectors continue to receive a positive response from the market — specifically, modern logistics warehouses and landed housing. In addition, data centres stand out as a growth area.

For 2022, we are cautiously optimistic that there will be some improvements in the Jakarta property market. The flight-to-quality demand in the office sector is expected to continue as the main theme. However, as there are some new completions expected to enter the market next year, occupancy will remain under pressure.

The retail market is expected to improve when the situation normalises. 

Meanwhile, condominium projects within mixed-use developments and proximity to public transport are likely to receive better responses from the market. 

Both landed residential and logistics warehousing sectors continue to remain resilient due to healthy demand from the market. In 2022, we believe logistics warehouses and landed houses are likely to remain attractive due to Indonesia’s socioeconomic potential. Also, data centres are expected to continue attracting local and international players, due to the growing number of internet users in the country.

Indonesia’s strong economic outlook in 2022 and the government’s commitment to develop infrastructure are expected to positively impact the property market. However, the uncertainty caused by the pandemic remains. Government policy is also key to boosting demand.

This year is shaping up to be a record one for many asset classes. The industrial, land, multifamily and capital markets (investment) asset classes have performed incredibly well with significant value creation throughout the year. For example, Canada’s financial centre, Toronto, is about to register its best year ever in commercial property investment transaction volume. Total year-to-date investment volume reached nearly C$16 billion (RM53 billion) and is poised to eclipse the all-time record of C$17.7 billion — previously set in 2019. This demonstrates stakeholders’ increasing confidence in the future of investment opportunities in the market. Capitalisation rates are lower across all asset classes with the exception of offices, which was unchanged.

We are expecting high activity to continue in industrial, land, multifamily and capital markets with more strength coming for the office sector. The office sector has lagged since the beginning of the pandemic but, although downtown foot traffic in Canadian cities remains below pre-pandemic levels, momentum has already started. In 3Q, our Avison Young Vitality Index showed foot traffic in downtown Toronto was up 62% quarter on quarter (q-o-q); in Calgary, it was up 23% q-o-q and in Montreal, it was up 107% q-o-q.

Also, in several Canadian cities, we are seeing that total available sublet space is shrinking, signalling that companies are reversing course on shedding space — yet another indication that return to office efforts continue. We anticipate this momentum will gradually increase. We expect office and retail rates to stabilise through the year. Meanwhile, in industrial rental rates, we also expect growth but at a more moderate pace in 2022. We do not anticipate significant change to capitalisation rates in 2022. Bottom line: we expect a continuation of a strong market in 2022 but a little less frothy than 2021.

Opportunistic buyers of commercial real estate are starting to focus on retail assets. Throughout the pandemic, retail was most impacted by stay-at-home orders. Now, there are opportunities that shrewd buyers will identify where they can reposition good assets to retail of the future or a redevelopment strategy where the asset is no longer the highest and best use.

Growth in commercial property values is influenced by interest rates and rental rate growth. If inflation persists and the only tool to fight the rise in prices is for the Bank of Canada to increase interest rates, commercial property will be impacted. Business and consumers may also be impacted by rising interest rates, which could moderate rental growth. Both of these factors could hinder market growth.

UK house price growth over the past 12 months has been the highest since before the 2008 global financial crisis. There will continue to be strong price growth across all major markets, albeit at a slower rate of growth to reflect the removal of the stamp duty holiday, removal of furlough and some current uncertainty and disruption around fuel, deliveries and inflation.

Price growth will be driven by mortgaged mid-life stage households who have seen strong wage growth, have built up some equity over the past decade and can access five-year fixed mortgages at record low rates.

Cities will bounce back more strongly in terms of price growth and rental growth than rural areas as there continues to be a renewed desire to return to more “normal life”. This bounce will particularly be felt in 2022 and 2023.

Price and rental growth is expected to cool in 2024 after an extended period of strong growth. This cooling will also reflect uncertainty heading towards the UK general election, which is currently scheduled for May 2024. However, the election could be held earlier which, in turn, would signal a quicker cooling of price growth if the UK government’s proposals to repeal the Fixed-term Parliaments Act come to fruition.

Transaction volumes will cool from the current 1.45 million per annum to about 1.2 million. This will reflect the removal of the stamp duty holiday and growing struggles for first-time buyers to get on the ladder. However, there will be an uptick to 1.3 million in 2023 due to a final boost in Help to Buy activity.

The Greater London housing market has seen more moderate price growth over the past 12 months compared with the UK regions. However, price growth has been on an upward curve on the back of a severely constrained supply of homes for sale and a returning demand for urban living.

Meanwhile, Prime Central London is forecast to see particularly strong activity over the next 24 months based on an anticipated return in travel from the world’s high-net-worth individuals and a severe undersupply of homes for sale and rent.

Birmingham remains the city which JLL expects to see the highest house price growth over the next five years. In 2022, Birmingham will be on the world stage when it hosts the Commonwealth Games.

Edinburgh is expected to see one of the highest house price growths of the UK’s major cities with the new local plan likely to restrict new housing supply in the Scottish capital. Demand will continue to outstrip supply, driving cumulative house price growth of 26% over the next five years.

In terms of [key drivers and outlook], UK GDP growth rebounded in 2021 following the sharp coronavirus-induced contraction in 2020. The recovery is forecast to continue with 2022 returning another year of rapid expansion, which should complete the return to pre-crisis activity levels. As this activity gap is closed and stimulus policies are withdrawn, economic growth will revert toward its trend rate of around 1.5%.

The Bank of England base rate is expected to remain low by historical standards for some time yet. Movement will be gradual, with the base rate reaching just 1.2% by end-2026, the end of the forecast horizon. Lastly, mortgage interest rates are likely to compress across loan to value as the premium for those with lower deposits fall on the back of strong house price growth, falling uncertainty and improving labour market conditions.

New York is witnessing record sales activity in Manhattan and a clear post-pandemic recovery is underway. The number of properties in Manhattan that saw contracts signed in October 2021 had risen more than 43% year-on-year, and the number of listings sat significantly below their five-year average. Recent sales volumes provide evidence of this uptick in demand, with the number of completed sales in the year to September 2021 up 47% compared with the whole of 2020.

In Los Angeles, we have continued to see incredibly strong sales activity despite the impact of the pandemic. In March 2021 (a year on from the start of the pandemic), for example, signed contracts were up 39% for single family homes and condominiums. We have continued to see demand for homes that offer large outdoor space, an advantageous work-from-home lifestyle and mountain or ocean views. It is these properties that have generated and continue to generate the highest premiums.

In Miami, sales have continued to surge throughout 2021, driven by the remote working lifestyle and Florida’s low tax regime. In Miami, there is a chronic lack of inventory and in 3Q, bidding wars rose to their highest market share on record as the market pace was the fastest recorded.

Overall, the favourable interest rate environment and the growth momentum of the US economy is fuelling investors’ appetite for US property — and we expect this to continue into 2022. The relaxation of border restrictions will impact all purchasers (owner-occupiers, investors and second home purchasers) and moving into 2022, we expect to see this continued release of pent-up demand from an international buyer standpoint in all of our key US markets.

In Manhattan, a return to growth, particularly in the prime segment of the market has been witnessed throughout 2021. Our expectations are that annual prime price growth there will reach 5% in 2022, which will represent Manhattan’s highest rate of growth for seven years.

One of Los Angeles’ biggest challenges is a lack of stock, which is particularly relevant for condominiums. Moving into 2022, we expect Los Angeles’ record low inventory, strong demand for large family homes and the continued availability of low mortgage rates to result in a growth of about 8%.

And in Miami, we are predicting to see the highest value growth of any major world city, with prices expected to rise by at least 10% next year — driven by Florida’s low tax regime, its shortage of stock, competitive pricing and coastal living lifestyle.

We are also witnessing strong demand for condominiums, in particular in the new development segment of the market.

In Manhattan, throughout the course of 2021, condominiums have continued to outperform other property types. The impact of the pandemic has only increased buyers’ and tenants’ needs for a property, which offers a fully serviced lifestyle with a host of residential amenities and 24-hour security and concierge. From a pure investment perspective, prime rents and new leases in Manhattan are accelerating rapidly. In October 2021, for example, apartment rents increased the most on record, driven by the return of office workers, international students and corporate tenants.

The International Monetary Fund is predicting a GDP growth of 5.9% for the US in 2022, which is higher than any other region apart from Asia. The confidence in the US economy, risk of inflation and continuation of low interest rates will continue to be key drivers, alongside the level of amassed savings witnessed in the US throughout the pandemic.

The return of foreign buyers will support growth in key markets. And in New York specifically, the market’s low purchase costs, historical and proven resilience, strong rental demand and lack of restrictions on foreign ownership will only continue to attract buyers from all over the world.

The property markets in  Mum­bai Metropolitan Region (MMR) and Delhi-­National Capital Region have shown remarkable resilience and buoyancy in 2021. Barring the two months (April and May) when the second wave of Covid-19 infections engulfed the country, the residential segment has seen robust activity in these two cities. The key factors driving residential activity are all-time best affordability of homes amid developer discounts, stamp duty cuts and lowest ever home loan rates. The two cities collectively saw the launch of more than 57,000 units in 2021 while housing sales stood at more than 71,000 units between January and September. 

We anticipate housing demand to grow during the upcoming festive season, provided there is no resurgence of Covid-19 infections. With the second wave receding since June and localised restrictions being eased across cities, residential activity has picked up momentum, where genuine buyers are back exploring options. As things stand now, we anticipate 2021 to be a year of slow retrieval and measured growth that will set the pace for an aggressive momentum in the new decade. Encouragingly, the ongoing trend of sales exceeding supply is likely to continue and 2021 is expected to witness an increase of 35% in housing launches and a 30% increase in sales compared with 2020. 

The housing market is likely to attain a new peak by 2023 with housing sales crossing the 3.17 lakh (100,000) units mark and new launches at more than 2.62 lakh units. City-wise, MMR and Bengaluru are set to lead the number of housing sales and new launches moving forward.

Despite the pandemic, more than US$6.27 billion worth of private equity (PE) was pumped into Indian real estate in FY2021 versus US$5.8 billion in FY2020, up 19% year-on-year. Unlike previous years, PE investors in FY2021 focused largely on portfolio deals spread across multiple cities and assets, instead of investing in a specific project or city. Such portfolio deals constituted 73% of the overall share, with about US$4.58 billion invested via portfolio deals in multiple cities. In FY2020, meanwhile, of the US$5.28 billion in inflows, only 8% comprised portfolio deals. Hence, investors shifted their focus across multiple assets and did not rely on a particular asset as this would diversify their risk.

Trends also indicate that good-quality, rental-generating assets attracted foreign investors during the previous fiscal year. India has a strong underlying demand for office space with quality workforce and average rents available at less than US$1 psf per month. Along with this, the successful REIT listings provided a good monetising option for PE investors, leading to stronger demand for good quality rent-earning office and retail assets. Good entry valuations coupled with the option to accumulate a healthy mix of portfolio assets have led to a surge in foreign PE investments.

In a major positive post-Covid-19, homeownership in the country, particularly in top cities, has become a compelling reality for many, accelerated by pandemic-like exigencies, developers’ offers and discounts and prevailing lowest ever home loan rates. There is structural demand for housing by first-time homebuyers, millennials’ growing urge to own a home rather than rent and those who are seeking to upgrade to a bigger home. This demand coupled with various other factors, such as stamp duty cuts, low interest rates, developer discounts and offers and bottomed out property prices, prompted homebuyers to seal the best deal, as overall property acquisition cost went down. 

Amid the rising inflationary trends of input costs, developers are gradually beginning to increase the prices of some of their projects. The price hike is much along the expected lines and buyers are warming up to it, particularly in those projects where demand is high and supply is low.


Japan has maintained its  overall market stability, backed by ample liquidity, a large domestic investor base and growing appetite for real assets under the near-permanent zero interest rate policy. Across various metrics, both deal volume and deal count have not deviated more than 20% from pre-pandemic levels despite a reduction in cross-border investment flows for the rolling 12 months.

Looking ahead, we expect investment yields to continue to compress, albeit at differing degrees across asset classes. Urban logistics and urban multifamily assets will continue to be favoured, due to their expanded use cases in central locations and more attractive risk-return profiles relative to other cyclical sectors, such as traditional office investments.

Location premiums remain high for Tokyo, which represent around 32% of the national GDP. However, asset class diversification beyond traditional office assets also means that capital flow is shifting away from Tokyo’s Central 5 wards. The district’s deal volume share has declined to closer to 30% of the country’s transaction volume over the 12 months, trending downwards below the 15-year average of 43%.

Beyond its domestic borders, Japan’s foreign net investment inflows are expected to rise from the current cyclical low once travel restrictions are lifted. The real exchange rate has declined to a near 27-year low, and is likely to push the country’s yield gap, tracking at around 4.7%, to a more attractive level for non-yen-based investors. For the past 18 years, rising foreign net investment inflows have tended to lift the target asset price higher by about 10%, as international investors are willing to pay a purchase premium to secure large-scale acquisitions. The share of deals worth more than US$100 million grew more than 30% of total institutional transaction volume in 2020. 

Meanwhile, we expect the property market growth to accelerate, with increasing appetite for alternative investments and the likely return of cross-border investments. As at 2Q2021, total market capitalisation had grown 5.6% year-on-year (y-o-y) to ¥20.7 trillion (RM769 billion). Whereas in private property markets, the growth was stronger, increasing 11% y-o-y to ¥23.4 trillion.

Concerns about social, digital and green transformation over the next 10 years will have mixed impact on long-term property market growth. Unpredictable economic recovery from the pandemic is expected to anchor discretionary space demand lower than pre-pandemic levels. Conversely, the required transformation to green real estate should support the quality premium income, tracking around 6.6% among high-profile tenants in the Grade A office districts. In the Tokyo Grade A office market, rental level deterioration has been more muted than global counterparts, with the average assumed achieved rent falling 5.2% y-o-y, and rising vacancy at about 3.2%. 

Our base case scenario expects the country to return to pre-pandemic business activity in mid-2022, a few quarters behind its global peers. Domestic mobility indicators are already approaching pre-pandemic levels, although international borders will remain closed at least until March 2022, except for essential business activities, according to the latest market consensus estimate.

Both the leasing and capital markets in Seoul have performed well in 2021. On the leasing front, the expansion of big technology companies, start-ups and flexible workspace operators caused the vacancy rate to drop in all three primary business districts. Subsequently, available incentives have been squeezed and Seoul is now classified as a landlord’s market.

Investment-wise, the total office investment volume for 2021 was above levels reached in previous years due to ample liquidity, low interest rates and the limited number of outbound investment opportunities. The total transaction volume at end-3Q2021 was close to KRW12 trillion (RM46.3 billion).

The expansionary fiscal policy introduced by the government, in response to Covid-19, spurred demand for premium investments, especially office assets, ultimately driving up prices. In particular, the Gangnam district remains the most popular submarket as it commands the highest property values in Seoul. This is due to limited office supply in the district and strong demand  from the IT industry.

We expect the positive momentum to remain in 2022 as the economy continues to recover and the country moves into the “living with Covid” phase. An overall lack of new supply in the office sector will see effective rents continuing to rise and a market to appear landlord-favourable. A low interest rate environment should see investors continue to invest in the market. However, as competition for good assets rises, prices will also increase.

Additionally, South Korea’s e-commerce market has expanded, fuelling interest in the logistics sector, and interest from domestic as well as foreign investors are expected to grow in 2022. This will lead to increased prices and a depression in yields, so investors should look for assets with the right licences at the development stage or value-add opportunities, where older warehouses can be upgraded to modern logistics facilities with the latest technology to enable efficient processes and meet current tenant demands. Also, the presidential election scheduled to take place on March 9, 2022, will be an interesting one to follow.