Technology: The Industrial Real Estate Game Changer
The impact of new technologies on global supply chains can hardly be overstated. The possibilities of mobile devices and apps seem endless and have made old business models obsolete.
Via an interactive audience poll at CBRE’s annual global Industrial and Logistics conference, ‘The Power of Three’, over 300 delegates shared their views on where innovation is leading the industrial & logistics industry and how location, specification and role of real estate may change.
The evolution of e-commerce and online retailing stands out as a major disruptive factor for the sector, encouraging technological advances. It is this, and the need for global manufacturers, retailers and third-party logistics providers to satisfy customer requirements. View accompanying client interviews
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.
• Supportive fundamentals: Corporate and investor confidence in Asia Pacific remains intact and is supporting firm demand from both real estate occupiers and investors. CBRE expects rental and capital value growth of around 2 – 4% for the office, retail and industrial sectors in 2015 and a 5% increase in real estate investment volume.
• Office: Cost control continues to influence corporate decision-making and is resulting in cautious expansion across the region. The focus on long term portfolio strategy and workplace improvement will result in an increased willingness on the part of multinationals and some domestic companies to consider opportunistic upgrades and activity-based workplaces.
• Retail: Increasing competition among retailers and rising operational costs will see retailers focus on leasing prime space in key growth markets in 2015. Landlords with a good operational track record; willingness to embrace “retail-tainment”; and ability to proactively collaborate with tenants will benefit from stronger retailer retention and consumer engagement.
• Industrial: Demand for logistics warehousing space will remain strong in most markets, driven by the development of organised retail in emerging markets; strong growth of e-commerce and expansion by third-party logistics providers (3PLs).
• Investment: Improvement in fund raising environment and sustained low interest rate will continue to support investment activity. Under the slow growth, low yield environment, the main investment opportunities in 2015 will be tied to the medium to long term structural changes in the region as opposed to cyclical investment prospects.
In the modern world, economic activity is globally integrated and trade is an increasingly important component of a country’s GDP. Logistics hubs are centerpieces for trading functions and identifying such hubs is important for occupiers, developers, and investors.
CBRE has developed a framework to analyse and rank logistics hubs in Asia Pacific based on their three primary demand drivers – Infrastructure, Market demand and Business environment. Using this demand-driven analysis, we have ranked 67 logistics hubs in Asia Pacific into global, regional, and local hubs.
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
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.
The Thai industrial market showed very minimal signs of recovery in Q2 2016 amid slowing global trade and an unfavourable domestic economy. Thai exports of goods fell by 4% Y-o-Y in the quarter. Manufacturing exports, which accounted for 87% of the total exports of goods, decreased for the sixth consecutive quarter by 6% Y-o-Y. Exports to China continued to fall, decreasing by 10% Y-o-Y in Q2 2016 while the growth in cross-border trade, a bright spot of the market in recent years, fell slightly from last year. Exports to CLMV countries (Cambodia, Laos, Myanmar, and Vietnam) fell for the second straight quarter by 3.5% Y-o-Y.
In the first five months of this year, Foreign Direct Investment (FDI) to the manufacturing sector plummeted by almost 60% compared to the same period in 2015. The Thai Industrial Sentiment Index fell to 85.3 points in June 2016 from 86.7 points three months ago.
In Q2 2016, the overall Bangkok condominium market continued to be slow. Demand still remained weak especially in the low-end market which was most affected by the economic downturn and the banks’ tightening mortgage lending criteria. Sales of newly launched condominium projects were slow in all grades in all areas.
The slowdown in the Bangkok condominium market was also reflected in the decreasing number of newly launched condominium projects. In this quarter, the number of newly launched condominium units hit a record low since Q2 2012 in the downtown area and since Q3 2011 in the midtown/suburban area.
Greater Tokyo Vacancy Rate Rises to 8.9%; Demand Remains Strong with Record Net Absorption of 110,000 Tsubo
New supply in Q2 2016 was 135,000 tsubo, the second highest quarterly figure on record.
The vacancy rate for the Greater Tokyo area rose 0.6% percentage points q-o-q to 8.9%. This was due to a high volume of new supply entering the market. While the vacancy rate rose, demand remained solid, with net absorption reaching a new quarterly record of 110,000 tsubo.
The Vacancy rate for LMT properties in the Greater Osaka Area fell to 1.9%, with investment in logistics by e-commerce companies driving the demand.
The consolidation of the P2P sector continued to impact the market. Insurance companies were quite active in the market, while demand from the TMT sector was mixed. The longer-than-expected economic recovery and restructuring might lead to a lower annual net absorption level for 2016 than 2015.
In view of sales erosion from e-commerce, retailers have begun to operate an omni-channel approach to maintain their sales volume. Established retail markets with higher online shopping penetration rates and balanced states of supply and demand are likely to bottom out.
Logistics rent increased by 2.5% q-o-q. China announced a follow-up regulatory notice which provides a one-year transition period for the new policy of cross-border e-commerce. However, in view of policy uncertainty over the long term, large-size cross-border e-tailers may allocate some of their operations from domestic bonded warehouses to overseas warehouses.
Cities in close proximity to tier I cities benefitted from demand spill-over as buyers expanded the scope of their search to the nearby markets. Robust residential sales and loose liquidity situation boosted the residential land market. The record-setting land sales in Q2 are expected to reinforce expectations for additional price growth.