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.
Office - Office leasing momentum remained slow as corporates turned more cautious due to volatility in the global economy. However, rents continued to record moderate growth, rising 0.5 q-o-q. Weaker demand, especially in Greater China, points to a decline in net absorption in 2016.
Retail - The quarter saw a slight improvement in retailer sentiment but activity diverged across markets and overall leasing demand remained subdued. Leasing activity continued to be led by F&B retailers The full-year rental outlook has been revised upward to mild growth due to the improved market in China and spillover demand in CBD’s in the Pacific.
Logistics - Demand for logistics facilities remained mixed as export-oriented economies continued to struggle, but cities with larger domestic markets performed well. Logistics rents registered growth of 0.2% q-o-q, thanks to solid gains in Shanghai, Shenzhen and Auckland. The regional supply pipeline in Asia Pacific remains high.
Investment - Commercial real estate transaction volume rose to US$23.1 billion in Q2 2016 following the traditional quiet first quarter. However, the increase was driven by the completion of a few big-ticket deals. Cross-border investment activity remained robust. Market activity is expected to weaken in H2 2016 as investors turn more risk-averse. This will result in a y-o-y decline in full-year transaction volume for 2016.
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
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.
•The macro environment of the trade and logistics sector remained weak, with the three-month rolling average aggregate trade falling for the 17th consecutive month in August.
•Leasing momentum continued to be slow with 3PL operators being particular cautious. Tenants forced to move out of those to-be-converted buildings underpinned leasing demand. There is also demand from the automobile industry.
•Increased space availability in the warehouse market is forcing landlords to offer more incentives to secure tenants.
•Warehouse vacancy edged down driven partly by rental discounts.
•Investment interests on industrial properties continued to be weak. Most purchases were for schemes with redevelopment potential.
•During the quarter, one leading self-storage operator shut down part of its operations and disposed of some assets to reduce risk.
•In a market where global trade shows no signs of a recovery, demand for shipping and other logistics services is expected to remain weak.
Net capital inflow into Pacific real estate in H116 was US$720 million, comparing favourably to the US$2,170 million net capital outflow recorded in H115. The big shift in net position reflected a decline in capital outflow from domestic investors which in H115 reached US$4.4b but fell away to US$1.4b in H116. The net position of the offshore investor sector was largely unchanged at US$2.2b.
Cross-regional investment activity was lower in volume. H116 saw US$8.7 billion of capital flows to and from the Pacific region, 30% down on the US$12.4 billion recorded in H115. This trend is consistent with the global theme of lower volumes of cross-border commercial real estate investment activity in 2016.
For decades, businesses have focussed on outsourcing as a means to reduce the cost of provision for ‘non-core’ business functions. The same holds true for property management, but the focus is now shifting beyond costs.
Effective asset management provides access to knowledge and expertise in order to implement best practice to meet rising demands of occupiers has prompted some owners to seek external property advisors.
Asset management is not simply about delivering basic (“hygiene”) factors at the lowest cost but is about supporting owners to drive improved asset performance.
This ViewPoint assesses the changes in the Greater Osaka market for large multi-tenant (LMT) logistics facilities and provides forecasts for vacancy rates and effective rent index.
The size of the economy in the Greater Osaka Area is 40-50% of that of the Greater Tokyo Area, but it has only 25% of the LMT space in the Greater Tokyo Area. The fact that LMT properties in the Greater Osaka Area represent between 2% and 3% of all the region's warehouses, less than half the figure of 5% in the Greater Tokyo Area, also suggests that the Greater Osaka Area has significant potential demand for LMTs.
Inland area accounts for a majority of the total new supply of 430,000 tsubo from 2016 to 2017. This will transform the market which had previously been confined to the waterfront areas, and likely to stimulate new demand.
The vacancy rate is forecast to rise from 3.4% in Q1 2015 to around 10% in H2 2016 and around 15% in H2 2017, the fact that supply will be concentrated in a relatively short period of two years makes it likely that there will still be vacant space that the market cannot immediately absorb.
Many of the headlines have focused on the impact of the decline of manufacturing on Adelaide’s economy. Nothing new here; this decline has been occurring for decades across Australia and in South Australia.
As a result, attention turns to drivers of growth going forward, and how the South Australian economy is positioned to capture opportunities from the new growth sectors for Australia.
Adelaide has good exposure to strong growth sectors in the economy such as health, emerging exposure to advanced manufacturing and the city itself undergoing a revitalisation of retail, health, education and residential construction.