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India is experiencing a significant transformation as the world’s fastest-growing major economy, with substantial investments flowing into asset classes such as REITs, InvITs, warehousing, and data centers. This growth is underpinned by the resilience of the real asset sector, supported by domestic capital and enhanced infrastructure, positioning India as a prime destination for global investors. Strategic investment approaches and effective risk management are crucial to sustaining this upward trajectory.

With the Asia Pacific commercial real estate market sitting at the top of the interest rate hike cycle (excl. Japan) and repricing for assets beginning to materialise, conditions are ripe for certain investment opportunities.

Now is an opportune moment for investors to acquire discounted assets in specific markets and sectors that are expected to see both pricing and performance rebound over the medium-term.

This report identifies opportunities for buyers and sellers seeking to capitalise on changing market dynamics, and explores the cyclical and structural investment strategies that can be deployed across the Office, Industrial & Logistics, Retail, Living, Hotel and Data Centre sectors, as well as through credit strategies.

Continued soft inflation and employment data in the US has changed market leadership as expectations for several Federal Reserve Fed Fund rate cuts has led to a strong rotation from large cap tech into lagging sectors including REITs which are seen as beneficiaries of lower rates. The FTSE EPRA Nareit Asia USD Dev Net TR rose 6.34% in July. Our active markets:

• Japan, +9.5%: BoJ Governor Ueda raised short term rates, press conference was hawkish and confusing. Created a lot of volatility to this day. JREITs, have performed much better relatively and are up in USD terms since the move. Bank stocks, beneficiaries of higher rates moved up initially after Ueda’s comments, but then lost almost 25% in two days as rate expectations have changed with global macro conditions continuing to moderate
• Australia, +3.8%:  The RBA announced no change to policy rate in its August 6 meeting and pushed back on expectations for a near-term OCR cut given persistently high inflation caused by high labour costs. We expect Goodman Group to show solid results including decent guidance due to strong contribution from its growing Data Center developments. We will probably increase our underweight should earnings be well received next week
• Hong Kong, +1.5%: Expectations going into results are extremely low especially after Hang Lung Properties’ DPS cut by 1/3rd due to weak sales particularly in China. We attended Link REIT’s HK and Shenzhen asset tour (separate note) and noticed weak attendance from buyside firms as interest in the market is at extremely low levels despite cheap valuations
• Singapore, +6.2%:  SREIT results were in line with expectations and dividend growth has been stunted by higher interest costs. Given the outlook for rates globally, rates in Singapore will follow as the MAS does not set interest rate policy directly.

Bottom line: REITs have been trading up since the US CPI print on July 11 on the back of a reset in rates expectations and decent earnings.

Conservation shophouses have emerged as one of the top alternative real estate asset class over the past decade in Singapore. Besides their finite supply and vintage charm, they are among the few asset classes in Singapore that allow foreigners and companies to own boutique buildings at a palatable quantum.

Transaction volumes hit a peak of $1.9 bn in 2021 before declining on high financing costs, record price points and most recently, overhang from the $3 bn money laundering case. CBRE Research believes the underlying fundamentals for shophouses remain solid, notwithstanding certain challenges in the near term.

This report looks at the past, present and future for conservation shophouses, and recommends actionable strategies for investors.