CBRE has revealed that Asia Pacific’s senior commercial real estate debt totals at least $257 billion, with an $8.4 billion funding gap expected between 2024 and 2026. While smaller than the funding gaps in Europe and the U.S., this gap is still significant, particularly for the office sector, which faces the largest repricing challenges.
Australia and mainland China are expected to experience the biggest funding gaps at $4.6 billion and $2.9 billion, respectively. The office sector, especially secondary properties that are currently less popular with tenants, will see continued repricing. However, distressed acquisitions will be limited in selective markets.
The report highlights that 72% of debt origination in Asia Pacific over the past three years was in recourse loans, meaning banks will play a pivotal role in determining the level of distress in the market. The risk of distressed sales is likely to rise if banks take a more aggressive approach to non-performing assets.
Despite these challenges, CBRE forecasts a 5% growth in commercial real estate investment volumes for the region in 2024, driven primarily by Japan. Other markets are expected to recover from a lower base, creating buying opportunities in the second half of the year.
In light of increasing refinancing costs, especially in Australia and Hong Kong, property owners will need to closely monitor Interest Coverage Ratios (ICRs) and interest expenses. Alternative lenders are expected to find opportunities in restructuring commercial real estate portfolios in certain markets.
CBRE’s analysis suggests that while the office sector faces challenges, investors may find attractive opportunities in select markets, especially as interest rates remain elevated for longer periods.
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