From a real estate perspective, global gateway cities offer many benefits. Their attractiveness to people and businesses means that space demand in their commercial real estate markets increases steadily over the long term, underpinning rent growth. These cities are also highly liquid markets, where real estate investments can be readily bought and sold. We have compiled this new report so that those looking to invest in one or more of the world’s great cities can quickly and easily understand pricing and market conditions.
Year-to-date net absorption (NFA) declined 10% y-o-y, reflecting weak leasing demand across the region. Leasing activity remained cost-driven and full year net absorption for 2016 is forecast to decline 15% y-o-y due to weaker demand in China. Nevertheless, rental growth is expected to remain stable.
Competition for prime space intensified as more retailers shied away from secondary locations. However, this failed to translate into rental growth as retailers remained sensitive towards costs and deals took longer to close. Rental growth is unlikely to regain momentum in the last quarter.
Leasing demand was stable as the major drivers of demand remained intact. Sydney, Auckland, and Wellington remained the most upbeat markets, but leasing activity was weaker in China and India. Logistics rental growth is expected to be flat in 2016.
Commercial real estate transaction volume increased by 2.1% q-o-q to US$24.8 billion in Q3 2016. Market activity was polarised and comprised of a few large transactions worth over US$500 million and numerous smaller sized deals below US$100 million. Full year transaction volume is expected to contract given that activity in Q4 2016 is unlikely to be on par with the same period last year.
Welcome to the H1 2016 CBRE Advisory & Transaction Services Research Review, a joint publication by CBRE’s Advisory & Transaction Services and Research teams in Asia Pacific.
In this edition we feature the Asia Pacific Occupier Survey; the Greater Pearl River Delta Infrastructure Outlook; the Seoul Office Market Tenant Profile; Online Retail and Real Estate in India; and the Rise of Co-working Space in Australia.
This edition also includes several of CBRE Research’s recent infographics including Retail Hotspots and Multi-Storey Warehouses. We also carry our usual review of the regional office, retail and logistics sectors.
We thank you for your ongoing support and hope you enjoy this edition of the CBRE Advisory & Transaction Services Research Review.
There was an estimated 3.4 million sq. ft. and 1.6 million sq. ft. of self-storage demand in 2015 in Hong Kong and Singapore, respectively.
In response to the demand, self-storage stock has increased greatly in Hong Kong (+20%) and Singapore (+11%) to 3.1 million sq. ft. and 1.6 million sq. ft. of rentable space, respectively.
However, this implies a shortfall of 200,000 sq. ft. of stock in Hong Kong in 2015 despite the strong increase in supply.
Singapore’s demand and supply dynamics are roughly in equilibrium but the demographic drivers are still favorable for self-storage demand in the long run.
Out of the four Ds, density was by far the biggest driver, both in Hong Kong and Singapore, responsible for 2.3 million sq. ft. of demand and 918,000 sq. ft. of demand, respectively. This was followed by dislocation, death and divorce.
Multi-story warehouses have succeeded in Asia due to high land and construction costs, small site areas, limited industrial land availability, and the accessibility to serve city center populations.
Industrial land prices per developable area are approximately six times greater in land-constrained areas than in land-plentiful ones. Hong Kong records the most expensive land price at US$240 per sq. ft., followed by Singapore and Tokyo at US$90 per sq. ft. and US$70 per sq. ft., respectively. China has the cheapest land price at US$15 per sq. ft. in tier-one cities.
Strong e-commerce growth has contributed to the demand for multi-story warehouses with the transport of goods inside a city becoming more important.
Australia, China and India are key growth markets for multi-story warehouse development.
The India economy in 2016 will be amongst the fastest growing economies in the world, thereby generating significant interest from investors and corporates. With inflation being broadly under control, the monetary policy easing cycle is expected to remain accommodative; with the Government expected to focus on instigating structural reforms. While 2015 ushered in numerous reforms across sectors, high hopes are riding on the 2016 budget with respect to key policies and reforms. This spells positive for the real estate sector with opportunities for landlords, tenants and investors:
Office: Corporate leasing is expected to remain strong with occupiers expected to remain focused on pre-leasing spaces in under-construction projects. As operational and financial efficiencies gain significance, focus on efficient workplace strategies will be accentuated.
Retail:F&B and fashion are likely to dominate transaction activity and the addition of supply in key markets is likely to pave way for more global brands in India. Shopping centers will focus on the “experience factor” to tackle the threat from online shopping.
Investments: While mezzanine financing will continue, equity structures will become increasingly popular, especially in big- ticket transactions in commercial assets
Until recently, there has been little progress in the development of Large multi-tenant (LMT) logistics properties in the Greater Nagoya Area. Consequently, the market has been extremely tight, with the vacancy rate standing at 0% at the end of Q3 2016.
Aichi Prefecture ranks #1 in Japan for the value of manufactured goods shipped, and the area’s population continues to grow. Demand for logistics facilities is therefore expected to remain strong for both industrial and consumer goods.
New supply is forecast to be 150,000 tsubo over the next two years. Although this will be a volume equivalent to the stock of space in Q3 2016, it is unlikely to resolve the shortage of logistics facilities, given the strength of latent demand.
The vacancy rate is forecast to rise to around 15% in Q2 2017, when new supply will peak. However, the vacancy rate is then forecast to trend downwards, and is likely to settle at around 9% by Q4 2018.
Effective rents began to rise at a faster rate in H2 2014. As of Q3 2016, effective rents stood at JPY 3,410 per tsubo, 17% above the market trough. They are expected to continue to rise at a moderate pace.
Manufacturing has undergone structural change globally in recent history. The removal of trade barriers, technological advances and labour force mobilisation have driven massive changes in what goods are manufactured, where, how and by who.
For the last several years the manufacturing sector in Australia has been in decline, as has its share of the economy, moving from 9.1% of GDP in 1999 to 6.0% in 2015. In that same time German manufacturing held fast at around 22% of the economy. What has happened to Australian manufacturing? Is Australia transitioning to a post-industrial economy? Where is Australia’s comparative advantage in manufacturing? What are the implications on industrial occupier demand?
Rather than suffer a terminal decline, Australian manufacturing will forge a path into advanced manufacturing, leveraging high quality innovation inputs such as education, training and technological readiness and converting them into high value outputs.
This report provides estimation of the current market peak timing, together with vacancy and absorption projections through an innovative and unique approach.
During the initial phases of property market cycles the demand for space grows. This in turn results in new construction being undertaken and subsequent stock increases. The model presented in the paper allows for estimation of the cycle generated demand and comparison with the known and expected space supply.
Subsequently, the vacancy resultant from oversupply of space is assessed at the closing stages of a cycle. Finally, the techniques developed in the paper allow for estimation of market peak timing.
The report discusses office and industrial sectors in detail providing estimations of cyclical market characteristics for each of these in turn.
This guidebook is designed to assist readers to have a better understanding of the Korea logistics market. The current distribution of logistics centers in Gyeonggi Province, home to the majority of logistics centers in Korea, is included in this report. In addition, comprehensive information on individual assets is covered to enhance the understandings on the leasing and investment market. Types of information covered in this guidebook are as follows:
- Quantity of import/export goods transported
- Volume of on-line shopping transactions
- Overseas Logistics Performance Index
- Recent supply of logistics center in Gyeonggi Province
- Development in the average rent of logistics centers
- List of supply forecast
- Yields on APAC Prime logistics center
- Yield comparison on Prime logistics centers vs. Office property
- Major logistics center transactions
- Comprehensive information on each individual logistics center
- Market practice - general leasing contract terms
Year-to-date total net take up declined by 25% compared to the same period of 2015, due mainly to the economic slowdown and the crackdown on the P2P financial sector. However, the service sector is emerging as a new engine of growth.
New completions this quarter were mostly regional or community malls in decentralised areas and residential catchments. Backed by the growing number of residents in suburban areas, new malls in tier I cities reported occupancy rates of over 90%.
New supply of modern logistics space in Q3 2016 fell to 360,000 sq. m., the lowest quarterly figure for three years. E-commerce demand in upper tier cities slowed as market penetration is already very high. In addition, disappointing foreign trade data weighed on demand in some port-cities including Shanghai.
Rapidly increasing housing prices prompted another round of tightening measures this quarter, with the government seeking to ensure already high land prices do not further boost housing prices. With many homebuyers disqualified from making further purchases, investor sentiment in major cities has weakened. However, given the current low inventory level, a price correction is unlikely to occur before Q2 2017.
New supply of modern logistics space in Q3 2016 fell to 360,000 sq. m., the lowest quarterly figure for three years. Although the period saw the usual seasonal spike in warehouse demand from e-commerce operators preparing for year-end sales, e-commerce demand in upper tier cities slowed as market penetration is already very high. In addition, disappointing foreign trade data weighed on demand in some port-cities including Shanghai, where the withdrawal of several trading companies pushed up vacancy. Overall logistics rents increased by 0.1% q-o-q, supported by growth in tier I cities. Rents in Chengdu, Chongqing and Wuhan continued to decline on the back of high vacancy. In Shanghai, landlords of properties in a few submarkets became more willing to negotiate rents due to rising vacancy, but Beijing continued to suffer from undersupply. During the quarter, it was reported that several landlords of logistics parks were planning to convert their projects to business parks to meet the growing leasing demand for office space.
The Thai industrial market continued to suffer from stagnant global and domestic economy. Thailand Q3 exports of goods increased by 1.9% Y-o-Y, the first positive growth after seven quarters decline. Manufacturing exports, which accounted for 88% of the total exports of goods, grew by 3.6% Y-o-Y. Exports to the United States and European Union grew by 7% Y-o-Y and 2.7% Y-o-Y, respectively, while exports to China contracted by 0.4% Y-o-Y. Regional trade did not show promising results in this quarter as Exports to CLMV fell by 1.8% Y-o-Y and exports to ASEAN countries stalled at -0.04%.
In the first eight months of this year, Foreign Direct Investment (FDI) to the manufacturing sector surged by 281% Y-o-Y due to the low base effect in 2015. The value of BOI approvals in our five focused sectors that drive demand for serviced industrial sector fell by 28.7% Y-o-Y.
Preliminary investment sales eased 29.5% q-o-q in Q3 2016. The residential market gained some traction in Q3 2016, as captured by the 74.8%
q-o-q uplift in residential investment sales.
Whilst office market fundamentals appeared broadly similar to the previous quarter, there were a few early signs of encouragement. Net absorption registered at 820,417 sf, reversing four consecutive quarters of contraction.
Business & Science Parks
Despite the overall soft demand conditions in the economy, the business park market remained stable with islandwide vacancy declining to 12.5% in Q3 2016 from 13.8%.
Weak performance and ongoing structural changes continued to weigh on occupier demand; prime Orchard Road and Suburban rents continued to decline albeit at a slower pace.
New home sales numbered around 1,900 units in Q3 2016, some 15% below Q2 2016’s volume. The URA price index fell by 1.5% q-o-q, bringing the total decline from the peak in Q3 2013 to 10.8%.
Slight improvements in some industrial indicators were registered in recent months. Deceleration in rental decline is supported by the gradual pick-up in leasing demand.