Asian property market prospects brighten as US-China trade tension eases, despite ongoing protests in Hong Kong
• Bangalore and Hyderabad should be two of Asia’s three fastest-growing cities over the next five years, with Shenzhen and Guangzhou also strong
• Persistent very low real interest rates to support sentiment and confidence among occupiers and owners
• Hong Kong, Singapore and Tokyo, followed by Shanghai, to remain Asia’s top occupier locations despite near-term pressures in Hong Kong and Shanghai
• Bangalore, Manila and Singapore should see firm rent growth over five years; Hong Kong rents to decline further
• Aggregate property investment volume for Asia to pick up in 2020: we predict a 7% increase to USD129 billion.
• Singapore and Tokyo office, hotel and retail assets hold investment appeal
• Logistics sector in China, South Korea and India and data centres promise higher returns, but investing in these areas requires expertise
In the office sector, while performance and outlook vary widely across markets, we continue to see Hong Kong, Singapore, Tokyo and Shanghai as the top locations in Asia for occupiers on socio-economic, property and human factors. Looking ahead, Bangalore, Manila and Singapore should see average rent growth of over 3% over three to five years, though Singapore faces consolidation over 2020-2021. In Tokyo, pre-commitments are high and vacancy is low, but rent growth is moderating. Tier 1 China cities face high new supply. However, occupier sentiment is better in Beijing and Shenzhen than in Shanghai and Guangzhou, reflecting growth in technology and other sectors like healthcare. Hong Kong should again see negative rent growth in 2020, especially in the CBD.
The property market’s resilience in Asia’s major cities is evident in total investment volumes, which registered only a 3% dip in the 10 largest urban property markets compared to a 13% fall in the overall regional market in the first nine months of 2019. This is a healthy outcome in light of the challenges of the past year. Office assets make up the largest part of the investment market, and in Singapore and Tokyo, tenant demand for office space has been driving positive trends in hotels, retail and other sectors. Tokyo offices are still the best-value large asset class in core investment markets, offering a yield spread of about 3.5pp over 10-year bonds. Looking forward, easing trade tension, persistent low or negative real interest rates and increasing interest in emerging markets like India and new asset classes should help raise total Asian investment volume by 7% to USD129 billion in 2020.
Logistics growth in China is still strong, but e-commerce players and end-users are moving to new markets in Tier 2 cities; investors and developers need to follow. In South Korea, logistics assets west and south-west of Seoul are appealing, while Hong Kong industrial assets are attractive for conversion. In India, we recommend developers continue to expand in logistics by collaborating with corporate and government bodies owning land banks. Demand for data centres is surging due to the spread of cloud computing and 5G mobile, notably in China. Much investment is targeting this area despite high barriers to entry, but investors require adequate expertise to succeed.
Flexible workspace operators were one of the fastest growing segments driving leasing demand in Asia between 2017 and 2019. The market continues to flourish despite the challenges faced by sector giant WeWork and some smaller regional players; for example, other operators such as IWG and The Executive Centre have withstood the pressures and are expanding steadily. We do not expect reduced demand from flexible workspace operators to constitute a significant new downward force on absorption of office space across Asia, though there may well be pressures in certain markets. Looking forward, we expect greater collaboration between landlords and flexible workspace operators. This will help enhance the tenant experience through ‘amenitisation’ and create an ideal environment for future growth in this segment.
– End –
For further information, please contact:
Asia Marketing Communications
Phone: +65 6531 8667
About Colliers International
Colliers International (NASDAQ, TSX: CIGI) is a leading global real estate services and investment management company. With operations in 68 countries, our 14,000 enterprising people work collaboratively to provide expert advice and services to maximize the value of property for real estate occupiers, owners and investors. For more than 20 years, our experienced leadership team, owning approximately 40% of our equity, have delivered industry-leading investment returns for shareholders. In 2018, corporate revenues were $2.8 billion ($3.3 billion including affiliates), with more than $26 billion of assets under management. Learn more about how we accelerate success at corporate.colliers.com, Colliers.com or follow us on LinkedIn.