Asia Pacific real estate market update March 2022

Regional Overview

Risks increasing, but specific property sectors still have high investment appeal

The macroeconomic environment has changed sharply since our February newsletter following Russia’s invasion of Ukraine and the decisive start of interest rate tightening by the US Federal Reserve. Signals from the Fed indicate that the benchmark US policy interest rate will rise from the current range of 0.25%-0.50% to 1.9% by end-2022, and 2.8% by end-2023. Together, these events increase the chance of global stagflation, i.e., a prolonged period of low growth and high inflation, raising questions about continued recovery in international trade volumes. Another cause of concern is the severity of the current wave of COVID-19 in Hong Kong SAR and China. It will be important to watch the situation in Guangdong, which is vital to industrial production and exports in APAC’s largest economy.

Below, we summarise recent economic developments for some of the major APAC markets, and the implications for commercial property investment strategy.


With economic metrics early this year surprisingly firm, real GDP growth of about 5% is still plausible for 2022. Further, China is one of the few big economies likely to see interest rates fall this year

However, COVID-19 cases are rising rapidly, notably in the north-east; Guangdong is also elevated. A prolonged shutdown of industrial activity in Guangdong could impact growth materially in 2022

Shanghai and Beijing business parks have high investment appeal. They attract smaller, domestically focused technology, internet and life sciences occupiers which are likely to keep expanding strongly

Logistics shipments in China are 60% driven by domestic e-commerce, and 40% by trade volumes. Leasing demand will stay firm, supporting investment interest and driving further yield compression

With ongoing migration to large cities and home prices close to unaffordable, the multi-family rented sector offers steady long-run growth. China could become the world’s largest multi-family market

Senior living is another nascent asset type with long-run growth potential in China. As of now, there are about 340 private senior housing facilities in Shanghai, compared to just a handful of high-end private facilities in Hong Kong

Hong Kong SAR

The Omicron wave and adherence until very recently to strict zero-COVID-19 policy will weigh on domestic demand in H1. Consensus forecasts of 2.0%-2.5% real GDP growth in 2022 now look high

Interest rates in Hong Kong will follow US rates upwards, although the effective cost of financing for Hong Kong enterprises will probably only rise with a significant lag due to abundant liquidity

Recovery in office leasing demand is likely to be delayed. New office supply in 2022 should also be the highest since 1998, and is concentrated in non-core areas. Rents and prices may be hit as a result, although this creates the chance to acquire assets for repositioning at good prices

Retail sales and leasing demand will suffer over H1, and high street rents may still drift down in 2022 even after eight years of decline. In the near term, non-discretionary retail looks more resilient

Investment volumes, which were strong in 2021 except in offices, may move sideways. Demand is likely to stay focused on logistics and new asset types such as data centres and medical offices


Singapore entered 2022 with firm growth momentum, reflecting strong exports and a solid recovery in domestic demand backed by a high vaccination rate and successful strategy against COVID-19

Inflationary pressures have intensified recently, leading the Monetary Authority of Singapore to tighten monetary policy unexpectedly in late January. Further tightening may follow

However, the growth outlook is still healthy, with retail sales accelerating. Further positive surprises in retail and hospitality are possible as Singapore’s borders gradually reopen and travel resumes

The office market should be one of the strongest in APAC in 2022, with prime rent growth of 6[(-7) was not found]

Investment volumes should rise further in 2022, with demand especially strong for offices but also for retail and industrial assets. Investment in residential may be dampened by property tax increases


Hong Kong Office

Halt in market activity amid fifth wave of COVID-19 – The current fifth wave of COVID-19 in Hong Kong is severely disrupting the recovery of the city’s office market, with leasing momentum coming to a halt as occupiers turn cautious and defer expansion decisions. Among notable transactions of the past month, the Chinese insurer CMB Wing Lung Insurance took 11,000 sq feet at Infinitus Plaza, and Link REIT leased 3,000 sq feet at The Hong Kong Club Building in Central. A whole floor of 10,800 sq feet at Far East Finance Centre in Central was also leased for a monthly rent of HK$53 per sq foot.

A distressed local investor offloaded the TY Wider building in Kwun Tong to Telecom Digital Holdings, a local telecoms company. for HK$760 million (HK$7,809 per sq foot). The same seller is also reportedly planning to sell Camel Paint Centre in Kwun Tong for HK$1.3 billion (HK$15,340 per sq foot).

Hong Kong Retail

New rental relief measures implemented – The embattled high-street retail market faces new downward pressure as Hong Kong is coping with the fifth wave of COVID-19. According to Centaline, leasing transactions dipped 39% y-o-y in February, the lowest level recorded since the first outbreak in February 2020. In the latest Budget Address, the Financial Secretary unveiled a series of measures to support local spending and retailers, including the distribution to all residents of a new round of HK$10,000 consumption vouchers in two instalments starting in April, as well as a three-month rental enforcement moratorium for tenants of specific sectors.

Selective expansion was seen by mobile accessories and F&B retailers in prime districts, with CASETiFY taking 2,100 sq feet at Causeway Place in Causeway Bay. The committed monthly rent of HK$120 per sq foot is reportedly 50% below the amount paid by the previous tenant, Etude House. Meanwhile, a Korean restaurant leased 5,890 sq feet at Peter Building in Central for a monthly rent of HK$70 per sq foot.

In the investment market, CITIC Pacific sold a ground floor shop at China Insurance Group Building in Central to a local investor for HK$208 million (HK$54,700 per sq foot, 3.8% GIY). In addition, a local family office disposed of shops on Tang Lung Street in Causeway Bay for HK$126 million (HK$126,315 per sq foot).

Hong Kong Residential

Crowded launches expected in H2 2022 – New home sales hit a 36-month low in February 2022, falling 44% from January to 481 units. No new projects were launched in the month as developers postponed planned launches to Q2. According to JLL, the volume of private residential units applying for pre-sale consent surged to a record high of 7,094 units in January. Together with delayed launches, a sizable pipeline of over 20,000 units is expected in H2, reaching the previous peak in 2018.

CK Asset has won the tender for the Urban Renewal Authority’s Hung Fook Street redevelopment project in To Kwa Wan for HK$6.0 billion, outbidding six other contenders. The A.V. of HK$11,382 per sq foot was 5% lower than the consensus market estimate. SEA Holdings was awarded a site in Repulse Bay for HK$1.2 billion (HK$62,352 per sq foot), setting a record in terms of price per sq foot for a residential site sold via government tender.


Singapore Office

Investment demand strengthens further – The office sector remains a favourite for both institutional and private investors with a string of notable transactions since the start of 2022. One important recent transaction was Cross Street Exchange, which was sold to PAG by Frasers Logistics and Commercial Trust for S$811 million. This was followed by the sale of 55 Market Street by AEW to Kajima for S$287 million, and then by the sale of strata space at Crown At Robinson to the Indonesian tycoon Tahir by Wywy Group for around S$260 million. Other office buildings reportedly on the market include Lazada One and Twenty Anson.

Given the continuous strong demand, investment transaction volume looks set to rise. Data from JLL Research indicate that office assets worth around S$4.9 billion were transacted in 2022, versus only S$2.3 billion of transactions in 2020. Prior to COVID-19, annual transaction volume was around S$7.6 billion.

Singapore Retail

Fifth straight month of growth in January 2022 – According to the Department of Statistics, retail sales rose 11.8% y-o-y in January, registering both the fifth consecutive month of improved performance and a leap from 6.7% y-o-y growth in December. Excluding motor vehicles, January’s retail sales grew 15.8% y-o-y versus 8.6% y-o-y in December. January’s total sales value was S$4.2 billion, with online sales accounting for 12.9% of the total. Sales growth was recorded in almost all segments except motor vehicles, optical goods and books. The improvement in retail sales partly reflected increased spending prior to Chinese New Year.

Tanglin Shopping Centre, one of Singapore’s earliest retail landmarks along Orchard Road, has been sold in the fourth collective sale attempt. The purchaser, Pacific Eagle Real Estate which is an entity privately held by the Tanoto family, acquired the freehold property for S$868 million (S$2,769 per square foot per plot ratio). A majority stake in the property was owned by City Developments Ltd.

Singapore Residential

Property tax increase likely to limit investment demand – As announced in the recent Singapore Budget, property tax, representing Singapore’s principal means of taxing wealth, will begin to increase from 2023. The increase will impact the top 7% of owner-occupied residential properties, and all non-owner-occupied residential properties. The tax on owner-occupied homes with an annual value in excess of S$30,000 will increase from the current range of 4[(-16) was not found] to a range of 6[(-32) was not found]. For non-owner-occupied homes, the tax will increase from the current range of 10[(-20) was not found] to a range of 12[(-36) was not found]. This will make it less attractive for investors to own residential properties because other costs such as financing and upkeep are also rising.

Moving forward, landlords may try to increase rents in tandem with the all-in increased costs. Rents of private homes had already climbed 11.2% y-o-y in January. Residential leasing demand is likely to remain healthy as more home upgraders seek short-term accommodation after selling their existing homes and while awaiting the completion of renovation of their new homes.


Shanghai Office

Investment transactions by technology owner-occupiers surged tenfold in 2021 – Shanghai’s commercial real estate transaction volume reached RMB106 billion in 2021, equalling 40% of mainland China’s total and ranking first among cities in China. Of the total, the office and business park sector made up 46%, or RMB49 billion. Transactions by occupiers in the telecoms, media and technology sector buying for their own use increased nearly tenfold from RMB1.8 billion in 2020 to RMB 17.4 billion in 2021. In contrast, investment purchases by occupiers in the finance sector decreased significantly.

After its planned takeover by Blackstone fell through last year, Soho China announced recently that it would sell 32,000 sq metres of strata-titled space in several buildings in Beijing and Shanghai at a 30% discount, seeking to capitalise on the firm investment market and to pay down its debt. The space for sale is located in nine assets including the Zaha Hadid-designed Galaxy Soho in Beijing and Soho Donghai Plaza, Jing’an District and Soho Zhongshan Plaza, Changning District in Shanghai, covering office, retail and residential uses. These buildings were partially or mostly sold on a strata basis in the past, and the liquidity of the remaining areas within the buildings is relatively low.

Shanghai Retail

Investment and development activity rebounds, with one megadeal launched – Shanghai’s retail sector returned to favour with investors in 2021, as transaction volume of retail properties rose from 5% of Shanghai’s total in 2020 to 10% in 2021. Firm investment and development activity has continued so far in 2022. Recently, Kerry Properties and GIC have broken ground on a 430,000 sq metre transit-oriented development project in northeast Shanghai's Jinqiao, Pudong district. This megaproject will be jointly developed and operated with HZM Capital, a Shanghai-based capital and asset management firm. It is scheduled to be completed in Q4 2026, and to offer 220,000 sq metres of retail space (51% of the total), 47,000 sq metres of residential space (11%), and 25,000 sq metres of office space (6%).  The remaining 137,00 sq metres (32%) will consist of utility and ancillary support space and parking lots.

Shanghai Industrial

Planned AI expansion – Pudong New District announced a three-year plan to develop its artificial intelligence sector into a RMB200 billion (US$31 billion) market, and to build an industrial chain composed of more than 1,000 AI companies by 2023. Zhangjiang Science City, the technology hub in Pudong, will serve as the core area of this AI industry expansion.

In the investment market, Chelsfield (backed by GIC) acquired a 176,892 sq metre logistics project featuring four-storey warehouses in Taicang from Skylark, a local logistics operator, on a forward sale basis. Taicang is a city in the Yangtze River Delta area, about one and half hours by road from Shanghai.

Shanghai Residential

Home prices rise as credit loosened – Following the cut in the loan prime rate in January by the People’s Bank of China, the annualised mortgage rate for first-time home buyers in Shanghai has been reduced from 5.0% to 4.95%. For those buying a second home, the mortgage rate has come down from 5.7% to 5.65%. The average price of Shanghai secondary homes sold in February was 0.5% higher than in January, and 8.5% higher y-o-y, as banks loosened credit1.

On the investment front, Ping An Insurance bought out CIFI Liveyu’s remaining 30% stake in their 63,000 sq metre co-investment rental apartment project in Pujiang, Pudong New District. The project is valued at RMB22,000 per sq metre. CIFI Liveyu is the rental apartment operating platform of the Shanghai-based developer CIFI group, and it will continue to serve as the operator for this project.

1Source: South China Morning Post, 7 March 2022.


The information in this market update is current as at March 2022 and does not necessarily reflect subsequent market events and conditions. This market briefing is provided for information purposes only and articles do not provide individual financial, legal, tax or investment advice. Past performance is not indicative of future performance. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance. The statements and statistics contained herein are based on material believed to be reliable but are not guaranteed to be accurate or complete. Investments strategies should be evaluated relative to each individual’s objective in consultation with their legal, investment and/or tax advisor. Schroders capital is not liable for any errors or omissions in the information or for any loss or damaged suffered.

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