9 December 2014
According to Colliers International’s 2015 Property Outlook, the number of real-estate transactions in Asia will rise substantially in 2015, as an increase in supply begins to match a need for investors to bolster their holdings in the region.
“There is pent-up underlying demand from both occupiers and investors, primarily due to the lack of stock, and that will gradually be satisfied,” Dennis Yeo, Colliers International’s Interim Chief Executive Officer, Asia, said.
One of the drivers behind that trend is that there are considerably more real-estate funds that will expire in 2015, leading to a greater number of willing sellers of institutional-grade real estate. At the same time, supply in terms of new stock is also on the uptick.
One factor causing greater demand for Asian real estate is a shift in investor attitude. Globally, investors have re-examined their allocations and are set to devote more capital to Asia. They are currently under-allocated to the region and see the increase in affordable stock as an opportunity to redress that imbalance.
Outbound investment from Asia is likely to continue at a rapid pace, particularly from Chinese developers looking to diversify their holdings. But conditions will be tougher for Asian investors to put their money to work.
“There are increasing challenges for investors looking overseas, not least the narrowing of the gap between yields in Asia and in oversea markets,” Yeo noted.
Whereas Asia will have a dramatic increase in supply and transactions, new supply will be limited in the United States. That is because projects begun in the immediate aftermath of the global financial crisis are now being completed in the United States. Construction virtually stopped in the United States, even in gateway cities such as New York and San Francisco, so opportunities for Asian investors to buy flagship buildings will be limited.
Within Asia, owner-occupiers will look to expand in decentralised locations for expansion and consolidation. For multinationals, cost management and cost consciousness are becoming the “new norm,” leading to a drive to reduce operating costs. Multinational occupiers also favour disposing of real-estate assets so they can divert capital to other business-investment options.
The e-commerce industry will flourish in 2015, thanks in part to favourable policies put in place by the Chinese government. China and India will see the greatest growth in e-commerce, Colliers predicts.
The drivers are the continued growth in private consumption in the region, underpinned by the increased spending power of young people, rapid urbanisation, and the emergence of the middle class. As a result, there will be strong interest in warehouse space in mainland China, particularly in smaller markets.
“Warehouse operators and occupiers will have more options in mainland China, as the number of new logistics facilities in second- and third-tier cities rises,” Simon Lo, Executive Director of Research and Advisory Services, Asia, said. “The volume of deals in the logistics sector should boom in 2015, with a diverse range of activity, including the sale of individual properties, equity investments and joint ventures.”
The recent introduction of Real Estate Investment Trusts (REITs) in India not only provides an alternative funding instrument but also a booster to the overall market activity generated from a range of industry players from developers, private funds to financial institutions.
Most cities in the region are anticipated to see a recovery in growth. Colliers forecasts that GDP in the region will pick up more significantly, by an average of 40 basis points next year.
With more realistic levels of supply coming to market in Asia, Colliers predicts that some of the cooling measures introduced in the region will be relaxed. Prospective investors should welcome these changes, as they lower any liquidity risk.
Yields should remain compressed for prime assets in core locations, and the cost of borrowing is likely to edge up in 2015. As a result, investors will have to behave differently in order to achieve better returns. Investors will see neighbourhood malls and value-added opportunities such as repositioning or converting buildings as their key targets in 2015.
For more results from Colliers International’s Asia Property Outlook 2015 report, please visit www.colliers.com/en-gb/asia/realestate2015 .