The firm says HNW investors, who tend to be more nimble players in the commercial real estate field, are able to rapidly take advantage of competitive valuations when they arise.
Global property advisory firm Knight Frank predicts
that private capital from high net worth individuals and others
will be a “driving force” for Asia-Pacific commercial
According to a new report from the firm, HNW investment into the space is expected to be on track for the highest level in five years, at $4.3 billion in 2023. These investors are motivated more by a desire to protect capital than chase after yields.
The comments come at a time when the commercial real estate market has witnessed contrasting fortunes amid the rise in interest rates over the past two years since the pandemic. Logistics and warehousing, for example, have fared relatively well given the move to remote working and online retail in certain regions, while offices have been hit by the shift in working patterns accelerated by Covid.
Knight Frank said that due to “abundant” cash reserves, HNW investors don’t require debt to make acquisitions so they can snap up opportunities at competitive prices.
“The sharp rise in bond yields has shifted the investment landscape and altered the appeal of different asset classes. However, despite the challenging macro backdrop, ample capital remains to be deployed. As markets have come to grips that central banks will unlikely ease policy for some time, assets will continue to re-price in the region,” Neil Brookes, global head of capital markets at Knight Frank, said.
“Opportunities for private credit and attractive entry points for assets are likely to emerge in the higher-for-longer environment, which will continue to favour long-term private investors with a low reliance on debt.”
Christine Li, head of research, Asia-Pacific, and report author added: “The extensive withdrawal observed from both domestic and international investors suggests a continued reluctance to deploy capital in the current high interest rate environment. The yield spread has tightened to an extent where certain markets are experiencing negative risk premiums.
“In the current inflated environment, competition is thinner as investors wait on the sidelines for headwinds to die down. Refinancing risks have also caused some assets to be put up for distressed sale. However, with the right strategy and opportune time, investors can still get their hands on favourable assets that offer capital appreciation and positive rental reversions, especially in thematic sectors such as living sectors, life sciences, and data centres,” Li concluded.