Welcome to the H1 2017 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 occupier trends in the legal sector; retailer strategy and expansion in Asia Pacific; the rise of co-working in Singapore; and the transformation of logistics facilities in Japan.
It also includes a recap of CBRE Research’s Seoul Office Market Tenant Survey, now in its fifth year.
We thank you for your ongoing support and hope you enjoy this edition of the CBRE Advisory & Transaction Services Research Review.
The Asia Pacific Industrial Occupier Guide helps occupiers navigate around the differences between the various leasing practices in Asia Pacific. It includes profiles of countries across the region as well as an analysis of standard leasing attributes and protocols such as:
•Typical lease length
•Space measurement standards
•Occupancy cost analysis
•Sales and purchase terms
•Market and other lease provisions
•Websites and contact information within CBRE for additional market information
•Easy access to summary analysis by country for comparison purposes
The Industrial Occupier Guide draws upon the knowledge of CBRE professionals across the region who possess detailed knowledge of the leasing practices in their respective markets.
Please contact us if we can assist in any way. We welcome suggestions for improvements to future editions of this Guide.
Data centres are becoming as important a part of business operations as office, retail and industrial assets. This trend is being driven by several factors including the increasingly digital world, IT development and the importance enterprise IT strategy plays in business delivery.
How data centre operators and cloud service providers position themselves now will determine their competitive status in the medium to long term. Asia is significantly different to the U.S. and EU, meaning that formulating the right strategy based on reliable intelligence and advice will be critical for service providers and end users.
The Internet of Things (IoT) and Industry 4.0 are likely to fuel incremental data centre demand, given the intensity of their data and computing needs. The importance of manufacturing to many Asian economies means that the adoption of the most advanced production methods will be a priority for many countries.
This report by CBRE Research explains why Asia Pacific is set to become the most important data centre regional market in the medium term. However, there remain pitfalls for the unwary and significant challenges for global multinationals in a culturally diverse and swiftly changing landscape.
Aggregate colocation supply across the four major APAC markets (Hong Kong, Singapore, Sydney, Tokyo) totalled 865MW as at H1 2017. Singapore with 304MW in total supply, is the largest market constituting slightly more than one-third of total APAC supply. This is followed by Hong Kong, Tokyo and Sydney which each accounted for 26%, 22% and 17% of total supply respectively.
Market growth over the last 12 months has been considerable, with total IT capacity having grown by 17.6% as compared to a year ago. This has led occupancy to remain relatively flattish as the market comes to terms with this supply influx. H1 2017 however saw some respite supply wise, with very few notable new developments completed in the quarter. On the demand end, robust take-up in the Singapore and Sydney markets underpin APAC net absorption of 47.1 MW for the first half of 2017 which helped occupancy to edge upwards.
Take up is being driven by the hyperscale cloud sector, particularly from US based companies. Hyperscale demand has seen a significant increase in individual requirement sizes with requirement quantum of more than 5 Megawatts not uncommon. This helped maintain occupancy levels as a fewer number of transactions are required to fill existing shell or unfitted data centre space. The growth of hyperscale data centres is likely to continue, driven by major trends such as big data, internet of things and video and game streaming.
Welcome to the H1 2017 CBRE Research Review in the Pacific. This semi-annual publication connects you with an executive summary of research from CBRE’s Australia, New Zealand and Global research including website links to full reports.
Office net absorption rose by 26% q-o-q in Q2 2017, supported by robust leasing demand in China and India. Vacancy edged up slightly to 11.5% and rental growth remained limited at just 0.5% q-o-q. Leasing activity was dominated by pre-leasing and flight-to-quality relocations. Demand is expected to remain steady in H2 2017, led by domestic financial and TMT firms.
Retail leasing activity remained stable in spite of reports of weaker enquiries. Overall rents were flat, edging up by just 0.2% q-o-q, as strong growth in the Pacific helped balance the decline in several Asian markets. F&B retailers continued to lead demand. The slow recovery in consumer demand is expected to further constrain retailer demand for bricks-and-mortar stores in the second half of the year.
Logistics demand strengthened in Q2 2017, led by e-commerce firms and 3PLs. Overall logistics rents rose by 0.1% q-o-q, supported by mild rental growth in the Pacific and China tier I cities. Activity during the quarter largely involved expansion in India and China tier I cities, together with relocations in Hong Kong.
Commercial real estate transaction volume increased by 11.5% y-o-y to US$53.2 billion in H1 2017. Investor demand remained firm, as evidenced by the higher number of deals, which increased 16% y-o-y. Activity was focused on China, Japan and Hong Kong. Turnover may slightly decline in H2 2017 as more markets tighten lending for commercial real estate investment and the lack of investible stock becomes more acute.
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.
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.
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.
Industrial rents in Sydney have been consistently higher than in Melbourne. In 2012, Sydney super prime net effective rents (NER) attracted a 40% premium compared to Melbourne; today it is closer to 90% (figure 1).
Strong growth of industrial supply over the past five years in Melbourne outstripped demand, having a moderating impact on rents and causing incentives to grow from 7.5% in 2012 to 25% in 2017. At the same time, Sydney saw constrained supply, particularly in inner city areas as well as withdrawals of industrial stock for residential conversion. This has placed upward pressure on rents.
With this rent spread increasing, Melbourne looks more attractive from an industrial occupier perspective. However, there has been no shortage of occupiers willing to pay Sydney rents.
The stellar performance of the investment market in Q3 2017 was attributed to the collective sales market, return of domestic capital and substantially larger ticket deals.
On the back of stronger economic fundamentals and generally more positive market sentiment, the office market is showing clear signs that it has turned the corner.
The business park market remained relatively quiet in Q3 2017 on the back of a muted demand environment and the absence of new supply.
Average prime rents remained relatively stable, with weakness in the secondary corridors and floors. With continual supply pressure in the coming year, rental growth is likely to be modest.
Developers sold 3,077 new homes in Q3 2017, with buyers picking up more units from projects that have been launched before. Initial estimates from the URA shows that the price index will recover by 0.5% q-o-q.
Industrialists are showing a flight to quality, where higher specification quality developments are seeing better success in leasing as well as holding up on rents.
Total transactions (by value) in the Pacific region in H1 2017 continued to trend down from the record breaking 2015. Outbound investment in H1 2017 was a fraction of that seen in 2016 with Pacific investors choosing to remain at home due to the attractive returns domestically (relative to other regions). Inbound capital from Asia remains the predominant source of capital, accounting for 78% of cumulative foreign net capital flows since 2008.’
China is still the primary source of foreign inflow in the pacific region, accounting for 28% of inbound transactions in H1 2017. In the short term, capital flows from China are expected to slow due to the State Council and National Development and Reform Commission (NDRC) placing property in the ‘restricted’ category, which means that overseas acquisitions by Chinese companies will be subject to additional layers of scrutiny. More recently, Korea has emerged as a key source of foreign capital due to their preference for long WALE assets.
CBRE have recently undertaken an Australian Industrial and Logistics Occupier Survey. The survey spoke to occupiers of industrial assets to get a better understanding of decision making, future plans and how changes in technology are impacting the real estate requirements. Similar surveys have rarely been undertaken in the Australian industrial market and there is limited benchmarking of what drives industrial occupiers’ decision making.
The results have been wide-ranging and reflect an engaged and optimistic industrial and logistics market. The survey had a wide scope and looked at how technology and automation are impacting business requirements, what impact e-commerce has had / will have, and what drives an occupier’s satisfaction with their industrial premises.
The outcomes of this research provides clarity around opportunities that exist to attract and retain tenants into the future and tools to futureproof industrial and logistics acquisitions.
The Real Estate sector in India has been undergoing a metamorphosis.
The four cornerstones of the sector – Regulation, Finance, Customers
and Technology have been experiencing changes in their own unique
The operating environment has been fairly dynamic, especially
over the last two years, with landmark reforms such as the Real Estate
Regulatory Act (RERA) and the Goods and Services Tax (GST) getting
implemented in quick succession.
The disruptions have not been limited to the operating environment, but
have percolated to the financing environment of the country as well. The
trickle down impact of the Demonetization drive, easing of FDI norms,
REIT guidelines, have resulted in global investors being bullish about
investing in India.
While the changes in regulation and finance are more due to the policy
thrust from the government, the changes in customer expectations are
reflective of the “evolving equations” in real estate. Consumers today
are not only aware of their needs, they also have a clear expectation
of their needs being met, all of which is getting refelected in the way our office, retail, residential and industrial spaces are being designed.
The fourth cornerstone – Technology has come into sharper focus more
recently. Moving away from times, where technology was only relevant
for specific sectors, today it is being used as an important tool to ensure
seamless integration with the other cornerstones of real estate (Regulation,
Finance and Customers).
The Goods and Services Tax (GST), the single most landmark tax reform in the history of India was recently legislated, unifying the entire country into a common market. The Indian warehousing sector will be amongst the biggest beneficiaries of the reform and is poised for structural changes in its operation dynamics post the implementation of the GST.