One of the last big deals in Asian commercial real estate in 2022 has brought some of the themes and trends shaping the region’s property industry to the fore. On December 28, Hong Kong-based Link Reit, Asia’s largest real estate investment trust, announced it will make its maiden acquisition in Singapore by purchasing two suburban shopping centres for US$1.6 billion, the largest real estate transaction in the city state last year. Link Reit is buying Jurong Point, one of the biggest suburban lifestyle malls in Singapore, and Swing By @ Thomson Plaza, part of the Thomson Plaza mall directly connected to a station along the city’s newest metro line, from the property investment arm of local trade union NTUC Enterprise. As part of the agreement, Link Reit will also take over asset and property management duties at AMK Hub, another suburban mall. In a presentation, Link Reit said its decision to invest in Singapore was based on a number of considerations, notably the city state’s reputation as a stable, transparent and business-friendly market. The resilience and strong performance of the shopping centres were also key factors, as was the opportunity to acquire assets in a country where prime properties are tightly held and are rarely up for sale. The transaction comes at a critical time for Asia’s commercial real estate industry and draws attention to themes that are likely to become more pronounced this year amid deep uncertainty over the outlook for the global economy, in particular the unexpectedly rapid reopening process in China. The first theme is comparisons between Hong Kong and Singapore which have proliferated in recent years, partly due to divergent approaches to managing the pandemic. Singapore, which began opening up in 2021, has bolstered its appeal in the eyes of international investors and emerged as one of the best performing property markets in Asia. The scale of the outperformance is striking. In the office sector – which is under intense pressure the world over mainly due to the pandemic-induced shift to hybrid working – rents for grade A buildings in the city’s core central business district are close to a record high while the vacancy rate stands at a mere 3 per cent due to a persistent lack of supply. While the fundamentals of Hong Kong’s office market are immeasurably weaker, no other market in Asia stands to benefit more from China’s reopening. The unsealing of the territory’s border with the mainland – which will begin on January 8 – is the long-awaited catalyst for a meaningful recovery and part of what is likely to be one of the most important tailwinds for Asian real estate this year. While China’s sudden reopening will be unsettling and turbulent for some time, it will provide a major fillip to Hong Kong. The second theme is the growing appeal of retail and hotel properties. Having been hit hardest by the virus, both sectors are best placed to capitalise on the recovery, underpinned by China’s reopening. In a report published last month, CBRE said it expected retailers’ expansion in China to pick up in the second quarter of this year as infections subside, “supported by rising demand for prime retail space and the bottoming out of shopping mall rents”. More importantly, retail properties in Asia are better able to cope with digital disruption than their peers in Western economies and benefit from stronger structural sources of demand stemming from the rapid expansion of the middle class. Transaction volumes in Asia’s hotel sector, moreover, are returning to pre-pandemic levels. While investment activity in the region’s commercial property industry as a whole is expected to fall 5-10 per cent this year, hotel deals are forecast to rise 6 per cent, data from JLL shows. The third trend is the opportunities for cross-border investment. Unlike many markets in Europe and the United States, where global private equity and institutional investors account for a large proportion of deals, Asia’s real estate investment market is dominated by domestic institutional and private buyers. Even cross-border investors are mostly from within the region. While the dramatic rise in interest rates will keep investment and occupier markets under strain, it will create opportunities for big investors like Link Reit to acquire assets at a discount in markets where prime properties are traditionally tightly held and rarely come up for sale. It’s pointless to compare housing markets in Hong Kong and Singapore The fourth theme is the importance of diversification. Given the extreme economic uncertainty right now, investors and developers need to pick their markets and sectors judiciously. While mature and resilient economies stand to gain the most from the uncertainty, emerging markets, where long-term fundamentals are stronger, are more compelling in certain sectors. Tellingly, in a report published last month, JLL chose Japan, Singapore and Australia – all mature and liquid markets – as its preferred investment destinations. However, it said investors were also looking at sectors “benefiting from structural tailwinds and higher potential returns”, with Chinese logistics and rental housing proving increasingly popular. Last year was a particularly challenging one for Asian real estate. This year will be just as testing, especially given fears about a steep global downturn. Yet, Asia could be a relative bright spot, provided China’s abrupt reopening eventually pays off. For investors, striking a balance between safety and opportunity, both from a market and sector standpoint, will be crucial. Nicholas Spiro is a partner at Lauressa Advisory