Investment in a Minute - New Year, Same Issues for Investors

Top headlines in the coming weeks

There are several key events in the coming weeks for investors to keep an eye on, but it is no surprise that many of the themes that dominated in 2022 are once again at the forefront as we begin the new year.

Firstly, the reopening of China following its zero-tolerance covid policies will be front of mind, in light of the newsflow around restrictions for Chinese travellers. The reopening should have a positive impact on economic growth and not just in China but across the region too and give a boost to real estate demand.

Secondly, the inflation story will continue with numerous prints released globally over the course of the week.

There is the potential for higher than expected inflation readings which could mean central banks remain hawkish and we see higher real interest rates which will likely lead to higher cap rates in most sectors and countries.

However, values may hold or only marginally adjust as the impact of cap rate expansion may be mitigated by the impact of the increase in rental and income coming from economic growth in markets with low vacancy levels.

Most underrated opportunities and why

We remain positive on the prospects in logistics development and investments. While logistics assets have done well during covid, the structural changes to shopper habits is under appreciated.

Take for example the step change we are seeing in both Australia and Japan where consumers have just started to learn to shop online and we expected e-commerce penetration to accelerate in their cities and demand for logistics to beat expectations.

50% of APAC consumers are making more than 50% of their purchases online and the growth trajectory is steepening.

Where are the headwinds this month and will it continue?

As we begin the new year we see the restructuring of businesses to reduce costs as a headwind. However we anticipate that this will stabilize after we see economic growth, in particular in Asia Pacific on the back of a recovery of (inter regional and global ) trade and supply chain efficiencies returning to pre COVID levels.

Across the real estate space we also anticipate that development projects will see a slow down as inflationary pressures hit the construction space with costs rising as well as the impact of higher interest rates. In a , generally, already tight market with low vacancies across all sectors, this will underpin rental growth in particular for the well located prime assets with high ESG credentials.

Biggest learnings and takeaways from last quarter

As we enter 2023, things are looking very similar to the past quarter with the possibility for continued aggressive action from central banks amid no easing in the inflation picture.

The biggest lesson is that no market is immune to inflationary and interest rate pressures but the impact is very different. Fuel and food inflation in Asia Pacific have been much milder than what was experienced in Europe and US.

In Asia, fuel prices rose 20-30% in some countries while food prices rose just 5-10% in 2022. For 2023, we expect inflation in Asia pacific to be 2.5-3.0%, much lower than the 4% in US and Europe. Having said that, there are quite significant differences within Asia Pacific. For example, interest rates in Australia and Korea have increased by 150-200 bps while in contrast, funding costs in China and Japan are still relatively stable.