CBRE’s 2017 Asia Pacific Real Estate Market Outlook - Opportunities in the New Normal – identifies and explains the key themes set to shape the regional property market over the coming year. Investors with a stronger appetite for risk are expected to seek opportunities outside gateway cities in locations offering attractive pricing.
Office leasing activity gained momentum in selected cities this quarter but cost and space efficiency remained a top priority. Rents edged up by 0.5% q-o-q, maintaining the slow growth trend recorded over the course of the year.
The retail market remained subdued in Q4 2016 during what is a traditionally quiet period for signing new leases. Rental declines in Hong Kong and Singapore pushed down overall Asia Pacific retail rents by 0.3% y-o-y.
Logistics leasing demand improved slightly in Q4 2016, supported by stronger industrial output in China. The limited supply in Southern China pushed up regional logistics rents by 0.1% q-o-q.
Asia Pacific commercial real estate transaction volume surged to US$34.9 billion in Q4 2016, the highest quarterly turnover on record. Full year transaction volume also eclipsed the previous record set in 2015.
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.
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.
CBRE Vietnam Market Outlook will highlight the performance and trends of the real estate industry of Vietnam in the recent years to predict what is coming next.
On the back of solid economic fundamentals, Vietnam’s gold, oil and stock prices picked up and its real estate market remained buoyant despite instability in international economies.Leasing activities continue to gain momentum. Rent growth and occupancy levels witnessed sustained improvements across all property types. Vietnam’s condominium sectorcontinued the strong momentum seen in 2015 and reported positive figures in 2016, although there have been growing concerns about oversupply. The gravitation of big-name developers towards the lower-end segments is expected to hold up market sentiment and bring balance to the condominium sector of this lower middle-income country.
For property investment, the residential sector will continue to attract developers and investors as fundamentals still look positive. However, income producing assets, especially Offices and Hotels will draw particular attention, following several high-profile transactions in 2016.
The overall economic outlook for Thailand looks set to mirror that of the past year, with the Bank of Thailand (BOT) maintaining its economic growth forecasts of 3.2% for 2016 and 2017.
EXTERNAL FACTORS POST GREATEST CHALLENGES TO THAI ECONOMY
The prospect of protectionist US trade policies towards China represents one of the major risks to the Thai economy over 2017, with a lower volume of Chinese exports to the US in turn reducing Thai shipments of raw and manufactured products to China for re-export.
GREATER FOREIGN INVESTMENT
While no fundamental shift in the dominance of prominent local developers is set to occur over 2017, market interest shown by foreign groups in Thailand, combined with cautious domestic bank lending, has created a favourable environment for increased activity from overseas investors and a clear catalyst for greater inbound investment in the Thai property market over the year.
DEMAND FOR PRIME LAND SITES TO CONTINUE
CBRE Research believes that the price of prime Central Business District (CBD) land in Bangkok will continue to increase as downtown condominium demand continues to remain strong with prices projected to increase further over 2017. CBRE Research is confident that the land price record will be broken again in each CBD location.
2017 will continue to see a rise in interest in the acquisition of value added opportunities, principally in the form of older properties in need of renovation. Offices, hotels and apartment buildings will be most actively sought by prospective purchasers.
The more stable macroeconomic indicators recorded in H2 2016 have provided room for policymakers to fine-tune the loose credit conditions and introduce proactive fiscal policies to stimulate economic growth. Supported by government-led campaigns to promote mass entrepreneurship and innovation, strategically important emerging sectors including information technology, bio-industry, new energy vehicles and digital and creative industry will continue to gain momentum in 2017. In turn, the growth of these sectors will create new demand for commercial real estate. As the Chinese economy enters the “new normal” era of growth, business, consumer and technological innovation will penetrate established commercial real estate business models and create new opportunities in the sector.
Multinationals office occupiers will remain cost sensitive in 2017 and refrain from expansion. Chinese firms will continue to expand but at a slower pace due to tighter capital controls. A total of 2.8 million sq. ft. (NFA) of new office supply will be completed by the end of 2017, the highest figure since 2008. The majority of new supply is located in decentralized areas and will place downward pressure on rents in submarkets including Kowloon, which is expected to see a rental decline within the range of 10%. Rents in Central will edge up slightly given the district’s extremely low vacancy.
Despite tight availability of investment assets for sale, investment activity, however, is anticipated to increase somewhat during 2017 as some vendors may soften their pricing stance in order to spur investor interest. Office capital values are forecast to fall 5-10% in 2017 as local buyers continue to be cautious and selective about locations. Hotel capital values will also face downward pressure. With limited availability of retail assets for sale while industrial properties will continue to be sought after by domestic owner-occupiers, capital values in these two property sectors are expected to remain broadly stable.
CBRE Research expects Tokyo office rents to shift to a moderate downward trend from 2H 2017. While the Greater Tokyo logistics market continues to see stable demand, new supply remains significant, and has already led to rise in vacancy rates in some areas.
Positive stimuli run up by an incoming U.S. Presidential administration suggests that risk is on the upside in demand for leasing spaces. These could include tax cuts and infrastructure investments, as suggested by the president-elect during his campaign. According to CBRE, the pace of pre-leasing activity for offices slated for completion in Tokyo in the coming quarters will be an important indicator of any changes in the market sentiment.