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.
Welcome to the H2 2016 CBRE Advisory & Transaction Services Research Review, a joint publication by CBRE’s Advisory & Transaction Services and Research teams in Asia Pacific.
This edition includes articles on the CBRE 2017 Asia Pacific Real Estate Market Outlook; the rise of co-working space in Asia Pacific; regional industrial trends; the evolution of the Hong Kong Grade A office market; and Western Australia’s retail centre revolution.
We thank you for your ongoing support and hope you enjoy this edition of the CBRE Advisory & Transaction Services Research Review.
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.
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.
According to results from the CBRE Asia Pacific Investor Intentions Survey 2017, the ASEAN region is expected to continue drawing investors in 2017. Investment sentiments have been growing on the back of improving infrastructure investments and rising urbanisation. Focusing on respondents on the South East Asia region as well as from the Singaporean investors, the key findings include:
•Investment interest in the office and industrial sectors within the region is poised to grow further, likely to be driven primarily by funds, property companies and REITs.
•Vietnam and Singapore sustained and garnered stronger investor interest in 2017. Potential long-term capital appreciation is likely to form the investment mandate of these cross-border investors.
•Outbound investment intentions by Singaporean investors are still strong. Australia and Japan are preferred investment destinations for cross-border Singaporean investors.
•More Singaporean investors intend to venture into alternative asset classes such as data centres and student dormitories in Singapore and overseas.
The year 2017 is expected to be a year of fructification – with the results of all policy initiatives taken in 2016 beginning to take shape. Most of the steps, including Real Estate Regulatory Act (RERA), Goods and Services Tax (GST) and Real Estate Investment Trusts (REITs), are aimed at improving transparency and enhancing the overall investor sentiment.
Steady lease rentals, high absorption levels and global investor interest continue to bring life into India’s commercial real estate sector.
The year 2017 is likely to be positive for retail witnessing an increased quality supply; with an addition of almost 7 million sq. ft. of Grade A supply, to be led by Southern cities.
Housing sales are expected to remain dormant in H1 2017 both in the primary and secondary markets, likely to be followed by a period of relative stability in H2 2017, as homebuyer enquiries are expected to rise due to a favorable lending and policy environment.
Demand for warehousing space is anticipated to remain robust throughout 2017, with consolidation (as a result of the implementation of the GST) being amongst the biggest drivers.
In 2017, proactive government policies are likely to provide a more secure environment for investors. While office and residential are expected to remain traditional drivers; however, alternate sectors such as retail and warehousing will also come to the forefront.
Tokyo Vacancy Rate for LMT Properties Falls to 6.5%;
Disparity between Areas Increases
The Greater Tokyo Area LMT vacancy rate fell to 6.5% in Q1 2017, a decline of 0.3 percentage points q-o-q. The net absorption of 27,000 tsubo was the lowest recorded since Q3 2015.The disparity between areas has increased further this quarter, with the vacancy rate falling in all three inner areas but rising again to 19.8% in the Ken-O-do Area.
The Greater Osaka Area vacancy rate rose to 17.4% as several new properties were completed with unlet space remaining. However, the period saw solid demand for properties nearing completion in inland areas, while demands for large properties also emerged in waterfront areas.
The Greater Nagoya Area LMT market achieved two new records. First, it saw 52,000 tsubo of new supply. Second, net absorption hit 39,000 tsubo. The vacancy rate in the area rose to 8.5%.
Office: Office net absorption in tier I cities nearly doubled y-o-y in Q1 2017 thanks to robust demand in Guangzhou and Shenzhen. Demand also stablised in tier II cities, which helped overall net absorption increase by around 60% q-o-q nationwide.
Retail: Green shoots of recovery were visible in the retail sector in Q1 2017. The February consumer confidence index rose to 112.6, a 10-year record high. Experiential retail continued to perform well.
Logistics: Tenants continued to adopt leasing strategies reflecting local market fundamentals. Demand continued to be led by Third-Party Logistics (3PL) firms, with solid leasing activity reported in Chengdu, Chongqing, Shanghai and a number of tier II and tier III cities in East China.
Capital market: The government implemented several new policies in Q1 2017 in a bid to lower leverage ratios. Authorities intend to keep monetary policy neutral as they seek to deflate the expanding asset bubble.
A cooling of the construction boom, which had buoyed the industrial economy for the past five years, has more recently created a headwind for the industrial economy but lower levels of new supply will help to support rent growth in 2017.
Yields compressed in Melbourne and Sydney but remained flat in all other markets suggesting non-core locations may be close to the bottom of the yield cycle.
Land values continued to grow strongly with average prices per square metre for 1.6ha parcels up 18% y-o-y driven by strong growth in the Sydney market.
Industrial - Leasing momentum improved this quarter, mainly driven by forced relocation demand. Strong e-commerce growth supported solid expansion from express services. Rents for ramp-access facilities continued to pull down overall rents as landlords adopted a more proactive approach ahead of the completion of new supply.
Average office vacancy increased by 0.02 pp on the previous quarter, rising to 10.26%. New supply in the YBD and the completion of a major new building in the CBD drove a rise in the overall vacancy rate in spite of significant office take-up in the CBD and GBD.
The period continued to see the emergence of drive-through F&B as a noteworthy new retail trend, particularly in areas around the outskirts of Seoul.
Logistics centres serving e-commerce companies registered solid demand on the back of the rapid growth of the online fresh food industry.
Transaction volume stood at KRW 861 billion in Q1 2017, a decline of 84.3% q-o-q.