US Fed rate hikes impacting real estate capital values: JLL | The Financial Express

US Fed rate hikes impacting real estate capital values: JLL

All eyes are on the Fed and where its terminal rate will peak as the ramifications of its efforts to tackle inflation are felt globally.

US Fed rate hikes impacting real estate capital values: JLL
There is a growing gap in buyer-seller price expectations due to rate hikes and the subsequent rising cost of debt.

Asia Pacific capital markets remained divided in terms of monetary policy, with some central banks following the US Fed rate path and others following their own monetary path. Findings of a recent research JLL report, ‘Heightened uncertainty weighs on investment activity – Asia Pacific Office Q3 2022’, show that there is a growing gap in price expectations which is weighing on capital values. In aggregate, Asia Pacific capital values declined 0.7% q-o-q in 3Q. The report also shows that the Asia Pacific quarterly leasing volumes declined 4% y-o-y in aggregate, against a backdrop of intensifying global macroeconomic headwinds. Further, Asia Pacific rents declined 0.4% q-o-q, erasing growth recorded in the first half of the year.

Overall, there is a growing gap in buyer-seller price expectations due to rate hikes and the subsequent rising cost of debt, and capital values are forecast to remain flat in aggregate in 2023.

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Delayed decision-making in many markets, COVID-19 controls in China and tight vacancy in some markets constrained leasing activity. Quarterly net absorption has improved slightly, only 900,000 sqm was recorded, pushing up the regional vacancy rate to 14.1%. In this context, Asia Pacific rents declined 0.4% q-o-q, erasing growth recorded in the first half of the year.

“As occupiers contend with a mix of challenges across the region and the world over the coming quarters, leasing activity is likely to remain flat and lopsided, but we are optimistic that organisations will meet these challenges head-on,” says Jeremy Sheldon, Head of Markets, Asia Pacific.

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Going forward JLL expects to see growth in leasing volumes slow down and zero-Covid policies are likely to weigh on leasing activity in China through the first half of 2023 and intensifying global economic headwinds are likely to give occupiers pause in many parts of the region, leading to delayed decisions and circumscribing leasing activity.

As such, JLL expects leasing volumes to be flat in 2023. A large volume of supply is expected to push the regional vacancy rate up further. Despite these headwinds, JLL expects rents to increase marginally in 2023, however, they believe risks to their rent forecast are primarily to the downside.

All eyes are on the Fed and where its terminal rate will peak as the ramifications of its efforts to tackle inflation are felt globally. Rate hikes and the subsequent rising cost of debt have led to a growing gap in buyer-seller price expectations. JLL’s current forecast calls for capital values to remain flat in aggregate in 2023, however, here too they believe risks are more to the downside.

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First published on: 08-12-2022 at 07:54 IST