Debt funding gap in the Asia Pacific region is relatively small, compared with Europe (US$191.4 billion) and the U.S. (US$157.3 billion), according to the latest analysis from CBRE.
This is attributed to the limited repricing in Asia Pacific when compared with other regions.
Outstanding senior commercial real estate debt in the Asia Pacific region totals at least US$257 billion, with a funding gap of US$8.4 billion expected between 2024 and 2026, CBRE says.
The office sector is expected to face the most significant gap, with further asset repricing anticipated throughout the remainder of 2024. This repricing will particularly affect secondary properties that are currently out of favour with tenants. However, distressed office acquisitions will be limited in selective markets.
With 72% of debt origination in Asia Pacific over the past three years being recourse loans, the actions of banks will determine the extent to which the debt funding gap leads to distress sales. CBRE says that if banks become more aggressive in pursuing assets within underperforming investor portfolios, the risk of distress in certain markets and sectors will increase.
"With cap rates expansion set to moderate and rates likely to stay higher for longer in Asia Pacific, we anticipate increased buying opportunities in the second half of 2024, particularly in the office sector," says Greg Hyland, head of capital markets for Asia Pacific at CBRE.
"CBRE expects commercial real estate investment volume in Asia Pacific to grow by 5% year-on-year in 2024, led by Japan while other markets are poised to recover from a lower base," he continues.
Property owners that want to refinance need to carefully monitor Interest Coverage Ratios (ICRs) and interest expenses.
The analysis shows that refinancing costs in Australia and Hong Kong SAR could be up to 1.9 times higher over the next two years. Japan will also undergo restructuring in interest expenses following the end of negative interest rates.
