According to international property consultant, Colliers International, Asia’s accelerating economic growth, as well as rising industrial output and retail sales all point to a positive outlook for the region’s property markets in 2014.
The latest Asia Real Estate Forecast 2014 by Colliers International reported that a tight supply and rising rents in core city locations will encourage office and retail tenants to relocate to less expensive decentralised areas.
“A striking feature in the market is likely to be a huge increase in outbound capital investment by Asian investors,” says Mr Simon Lo (盧永輝), Executive Director of Research & Advisory | Asia at Colliers International. “They will be seeking to exploit the vast differences between the property cycles in Asia and the US and Europe, in order to achieve better yields and to enjoy the strategic benefits of portfolio diversification.”
Chinese investors are set to lead the way in this trend. They are likely to spend at least twice as much on overseas property assets than last year. Their favourite investment destinations will be gateway cities such as London, New York and Chicago. Taiwanese institutional investors will also be major players, following the recent relaxation of regulations concerning overseas investments by the authorities. Meanwhile, Korea will be following suit with a more relaxed policy on the acquisition of overseas real estate by Korean nationals.
Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory at Colliers International, says, “In Singapore, developers and investors are also looking at other geographical locations for potential opportunities and returns. New and adjusted local government policies in recent years, that were meant to prevent a real estate asset bubble from forming and bursting, have, somewhat, limited the opportunities here for investors and developers. In addition, the property playing field in Singapore has matured with many players bringing more diversity into the game; hence, increasing the level of competition.”
Ms Chia continues, “Nonetheless, although the urban environment has become tougher and more challenging for one to navigate, real estate users in Singapore have benefitted from the burgeoning variety and increased vibrancy. Not only do developers and investors have the opportunities to bring to other markets the latest lessons learnt in the last 10 years on the rapid development in Singapore, they will also be able to import best practices and new concepts from the region and beyond.”
Key highlights from Colliers International Asia Real Estate Forecast 2014 include:
Modest office rental growth
Overall, Asia’s office leasing sector will remain steady, with rents increasing by an average of 3 per cent across the region in 2014. However, there will be some big variations. Jakarta and Manila are expected to remain the hot spots. These two cities saw substantial increases in rents last year, and the trend is set to continue in 2014, with a 13 per cent year-on-year growth for Jakarta and 9 per cent for Manila. The recovery from a cyclical downturn and growing demand is expected to fuel a hefty 12 per cent increase in rental growth for Singapore. The performances of office markets across China will be mixed, due to the impact of different supply cycles in individual cities. The region’s two key laggards are expected to be Hong Kong, due to limited growth in demand, and India, where economic and political concerns have dampened market sentiment.
Logistics fuels increase in industrial rents
Asia’s logistics real estate sector will definitely benefit from increasing logistics throughput in 2014. The rents of industrial and logistics premises will grow by an average of three per cent, as more small-and-medium-sized companies outsource logistics operations to third-party logistics operators. Industrial and logistics rents in Manila are expected to remain the fastest growing in Asia, albeit by a more modest 21 per cent this year, compared to 42 per cent last year. Singapore is the only market that will likely experience a small decline in industrial rents, due to the continuing cost-conscious attitude of industrial tenants, the implementation of government’s regulations, the anticipated delay of corporate expansion plans, as well as the large supply pipeline of multiple-user factory space in the year.
Retailers focus on decentralised locations
The retail sales in Asia are projected to grow by an average of eight per cent. Its vast retail market and spending power mean that China will account for much of this, with added momentum from the government’s relaxation of its one-child policy and proposals to facilitate the relocation of people from the countryside to the cities. Vietnam and Kazakhstan are also projected to see a major increase in retail sales.
Colliers International forecasts that retail rents will grow by an average of 3 per cent across Asia in 2014, with retailers increasing their emphasis on decentralised locations. While retail rents in Guangzhou, Hong Kong and Ho Chi Minh City are expected to decline, those in Hanoi and Singapore are likely to remain firm. The increases in other key retail markets in Asia will most likely range by between less-than-1 per cent and 17 per cent in the coming year. The large variations are due to differences between rents in core and decentralised areas, as well as the locations of new supply.
Yield expansion to continue
In anticipation of an increase in the cost of funds, Asia’s real estate yields are expected to continue its upward rise. Office yields in most Asian cities are projected to edge up by a further 10 to 30 basis points (bps) in 2014. However, the exceptions will be Shanghai, Guangzhou and Tokyo, where yield compressions are expected due to the unique buyers profile and economic policies in the market.
The weak Japanese Yen will offer foreign investors a window of opportunity to snap up high quality office and industrial developments in Tokyo, where office rents are expected to edge up in line with inflation and yields are likely to be compressed by 10-15 bps in 2014. Since it is always challenging to source for top-calibre properties in Tokyo, Colliers International believes that investors will seek opportunities in other major Japanese cities, such as the Osaka and Nagoya metropolitan areas.
In India, recent policy amendments to increase market transparency and plans to establish REITs have set the scene for a turnaround in the property market. However, this is not likely to occur until after the general election in 1Q 2014. Further stabilisation of the Rupee would also boost the confidence of real estate investors in returning to the market.
For a global perspective on 2014’s top real estate market projections, please refer to our global report – 25 Predictions for 2014.