According to Colliers International’s Asia Property Outlook 2015, the number of real estate transactions in Asia will substantially grow in 2015, as an increase in supply begins to match the demand from investors to bolster their holdings in the region.
Mr Dennis Yeo (杨焕杰), Interim Chief Executive Officer | Asia of Colliers International, says, “There is pent-up underlying demand from both occupiers and investors, primarily due to the lack of stock, and that will gradually be satisfied by what we anticipate as a growing volume of new supply in 2015.”
One of the drivers behind the 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, there will also be an increase in supply, in terms of new stock.
One factor causing greater demand for Asian real estate is a shift in investors’ 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.
Mr Yeo notes, “There are increasing challenges for investors looking overseas, not least the narrowing of the gap between yields in Asia and in overseas markets.”
While Asia will have a dramatic increase in supply and transactions, new supply will be limited in the United States in 2015. The narrow supply pipeline is because projects developed during the global financial crisis – when construction virtually stopped then in the United States, even in gateway cities such as New York and San Francisco – are only in the process of completion now. Hence, opportunities for Asian investors to buy flagship buildings will be limited.
Against a backdrop of sustained economic growth in the region, investor confidence should be strong across the full spectrum of real estate asset classes in 2015. While the outbound trend of pushing investment capital overseas in search of opportunities with better returns will continue in 2015, more long-term capital will be heading back to Asia at the same time due to the narrowing of the gap in yields between Asia and the overseas markets.
Transaction volume is forecast to increase in 2015, given the greater amount of stock available for sale – either from investment funds or from brand new developments completed in districts outside the city core. Developments are expected to be pitched at reasonable prices, resulting in a marked uptick in sales transactions.
In particular, the recent introduction of Real Estate Investment Trusts (REITs) in India not only provides an alternative funding instrument, but also acts as a booster to the overall market activity generated from a range of industry players from developers, private funds to financial institutions.
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.
Looking specifically at Singapore, the capital market is expected to see an increased volume of transactions in 2015. It is likely that there will be more foreign investors on Singapore’s shores next year, as they continue to believe in the strength and resilience of Singapore’s economic fundamentals and stability. The Republic’s evolution into a wealth hub for the region also encourages longer-term investments and attracts inbound capital from Asia and beyond.
2015 is expected to experience a greater volume of traffic in the logistics industry, underpinning decent prospects for demand for industrial and warehouse space. The drivers are the likely continued growth in private consumption in the region, on the back of the increased spending power of young people, rapid urbanisation, and the emergence of the middle class.
Mr Simon Lo (盧永輝), Executive Director of Research and Advisory | Asia of Colliers International, says, “In particular, 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. The volume of deals in the logistics sector should boom in 2015, with a diverse range of activities, including the sale of individual properties, equity investments and joint ventures.”
Ms Chia Siew Chuin (谢岫君), Director of Research & Advisory of Colliers International, says, “The industrial sector in Singapore, however, is expected to slow down in 2015, as new government measures and policies continue to filter through the market. Specifically, JTC’s revised sub-letting policy and other earlier policy changes are expected to slow down en bloc sale transactions of properties built on JTC land, as well as to increase the difficulty in executing Sale & Leaseback transactions; which, in turn, could hurt the rents and yields achievable by third-party facility providers in the medium term.”
Within Asia, owner-occupiers will look to 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. Another trend expected for 2015 is that multinational occupiers will favour disposing real estate assets so that they can divert capital to other business-investment options.
Zooming into Singapore, for 2015, the office market will continue to attract investors – including institutional players, opportunistic private-equity investors, high-net-worth individuals and family offices.
Ms Chia adds, “The expected under-supply of new office space in 2015 will encourage a gradual rebound in occupancy until at least early 2016. These supporting factors will ensure that rents and prices for office space continue to improve.”
Demand for retail real estate is expected to be strong in 2015, on the back of increased consumer spending. China and India will be the markets that see the greatest growth in 2015 due to supportive government policies surrounding e-commerce.
For most mature markets across Asia, the lack of new supply will remain a key challenge for most retailers. Opportunities in decentralised sub-markets are going to be the most appealing options for mid-tier brands that want to establish a foothold at reasonable rents. Investors will see neighbourhood malls as key targets in 2015, and will also look at repositioning and converting existing retail properties.
Ms Chia comments, “Singapore will continue to draw new retail brands to its shows, while existing international brands with financial muscles will also look towards further expansion. As such, retail rents in Singapore are expected to remain stable in 2015.”
To read the complete Colliers International’s Asia Property Outlook 2015, please visit http://www.colliers.com/en-gb/asia/realestate2015.