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Macro is likely to lose momentum further given restrictive monetary policy. More cap rate expansions are forthcoming with rates staying higher for longer. There are more risk factors to consider, and investors should stay selective in strong thematic plays.

Wai-Fai Kok, Head of Real Estate, Research & Strategy – Asia Pacific

APAC GDP is projected to grow a robust 4.7% YoY in 3Q23, according to �۶���Ƶ Investment Bank. For the full year, GDP growth is forecast to accelerate from 4.2% in 2022 to 4.9% in 2023, higher than previous expectations 6-12 months ago. A low base effect driven by the late reopening of China, Hong Kong and Japan was an easy win and well anticipated. The sturdy domestic consumption and labor markets, however, were not our base case. This was remarkable especially considering the sharply higher interest rates, elevated inflation and softer external demand. Consumer sentiment surveys have been painting a bleak picture for several quarters now, but they were largely an ineffective indicator for the year. Negative real wage growth has been well buffered by a drawdown of pandemic savings.

Employment is strong, inflation is falling and economic fallout from monetary tightening is limited. This was a better macro outcome than most had hoped for. However, the disinflation trend seems to have stalled, and the rates are still too high. Upside risks have also increased lately given higher oil prices and a strong US dollar. Interest rates staying “higher-for-longer” is now the buzzword and this seems inevitable without a faster cool down.