Impact of low interest rates on Asia-Pacific commercial property prices likely to be limited, says UBS
- Swiss bank says investors should focus more on enhancing rental income rather than look for capital gains on new acquisitions
The pause in US Federal Reserve interest rate increases is unlikely to boost commercial property prices in Asia-Pacific, according to a new report from UBS.
Citing historically low rental yields, driven in part by high pricing, the report noted that in Asia-Pacific cities outside Australia, the “marginal benefit from an extended period of low interest rates is very limited”.
“Yields across most APAC markets are at their lowest in the last 10 years. Obviously, that does not mean prime yields cannot tighten further, but it does imply that we are almost reaching the floors of absolute yield levels,” said Shaowei Toh, author of the report.
He suggested that investors in APAC commercial property take a more defensive approach on their investments, focusing more on enhancing rental income rather than looking for capital gains on new purchases.
Toh also said that pricing of commercial property in APAC had “defied logic”, with rising prices even in the face of rising interest rates in 2017 and 2018, due to the enormous pool of investment capital chasing opportunities.