The View | Asia’s commercial property sector is showing strength even in vulnerable economies

Discrepancies between the economic outlook and investment landscape are particularly evident in Asia’s commercial real estate market

The decline in investment activity for the region masks divergences in performance and fails to capture strong underlying fundamentals in many markets

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The Gangnam district in Seoul, South Korea. The nation’s exports contracted last month for the first time in two years, yet rental growth in Seoul’s office market is off the charts. Photo: Shutterstock

Published: 2:30pm, 7 Nov 2022

In September, Goldman Sachs joined a growing list of Wall Street firms that have revised down their forecasts for economic growth in China. The bank cut its estimate for gross domestic product growth next year to 4.5 per cent on the basis that Beijing’s disruptive “dynamic zero-Covid” policy would last longer than it anticipated. Its forecast for growth in 2022 was lowered to 3 per cent earlier this year.

Yet, Goldman Sachs’ asset management arm announced last month it had agreed a joint venture partnership with Shanghai-based property developer Sun Jade to invest in new infrastructure assets, in particular modern warehouses, in China’s top-tier cities. The tie-up was its second logistics-focused joint venture with a Chinese developer in as many years.

There are plenty of examples of Wall Street firms whose subsidiaries differ markedly on the prospects for countries and sectors. However, discrepancies between the economic outlook and investment landscape are particularly evident in Asia’s commercial real estate market, a heterogeneous region spanning advanced and developing economies.

To be sure, the twin threats of rapidly rising interest rates and a sharp economic slowdown are weighing on Asia’s occupier and investment markets. In the third quarter of this year, transaction volumes across the region were down 13 per cent on a quarterly basis and 29 per cent year on year, according to JLL data.

Yet, the decline in investment activity for the region as a whole masks significant divergences in performance and fails to capture strong underlying fundamentals in many markets, including those one would have expected to be under more pressure by now because of the deterioration in economic conditions.

Tim Graham, head of international capital Asia-Pacific at JLL, said global funds, which are seeking to increase their allocations to real estate, are “realising the investment landscape in Asia is quite diverse and more nuanced” than the headlines suggest.

.css-1m2rp1p{color:#34b8b5;}The View | Asia’s commercial property sector is showing strength even in vulnerable economies

The View | Asia’s commercial property sector is showing strength even in vulnerable economies