Shanghai, February 7, 2023 – A tightening interest rate cycle and global macroeconomic uncertainties influenced decision-making, resulting in a 27% year-on-year decline in direct investment in Asia Pacific commercial real estate. According to global real estate consulting firm JLL (NYSE: JLL), investment, totalled US$129 billion for the full-year 2022, in line with the firm’s projections. China registered a full year transaction volume US$24.8 billion, a drop of 37% year-on-year.

However, investment activity picked up in the fourth quarter, with a 12% increase quarter-on-quarter in Asia Pacific supported by a 125% increase in China, reinforcing JLL’s conviction that the slowdown is likely to moderate in 2023.

High interest rates in the US, persistent Covid disruptions as well as developer liquidity issues contributed to a challenging investment environment in China last year.

Despite these challenges, Q4 2022 provided a silver lining with investors regaining confidence in the market. Total fourth quarter transaction volume rebounded 125% quarter-on-quarter as a series of policies and initiatives aimed at revitalizing the property sector were introduced. Developers’ liquidity concerns were addressed and allowing for financing ensured completions of projects, boosting market confidence.

According to JLL, real estate will continue to play a significant role as a “pillar of China’s economy” with REITs destined to expand into other asset types allowing investors a clear exit strategy. Though arguably the biggest boost came when China officially announced the end of Covid regulations.

China’s rental housing boomed in 2022, especially with the launch of C-REITs bolstering investors’ confidence. Rental housing transactions were diverse in 2022 with both domestic and foreign Investors committed to acquiring a wide range of assets. With rental housing REITs successfully launched and performing strongly, transaction activity is expected to continue.

Office remained the most popular asset class in terms of investment volumes, rebounding significantly in 4Q22; Logistics landlords rationally repriced their assets as investors show a more cautious approach despite sector resilience. Despite the anticipated decline of transactions in sub-first tier cities and substantial supply in the pipeline, 2023 will see favourable policies inject more confidence in the market. With travel restrictions lifted, investment in hotels is expected to return as international and domestic travellers will drive demand in the hotel sector.

“Looking ahead into 2023, we anticipate investors being cautiously optimistic. With China focusing on growing the economy, the first half of the year will see a unique window to acquire assets with lower pricing,” says Eric Pang, Head of Capital Markets China, JLL. “This year should see a rebound in traditional asset classes, especially office assets, while the first six months should see continued interest in rental housing given beneficial policy initiatives.”