Overall activity in Asian property markets remains firm, and recent developments brighten prospects for the coming year and should raise confidence among investors, developers and occupiers, according to a new report by Colliers International, a global commercial real estate services provider.
Despite headwinds, such as the general economic slowdown, trade situations between the US and China, and social situation in Hong Kong, the fundamental attractions of Asia’s top occupier locations, such as Singapore, Tokyo, Shanghai, and even Hong Kong, remain little changed, notes Colliers’ annual Asia Market Outlook report for 2020. Furthermore, economic prospects for the region have recently brightened, due partly to an easing of US-China trade situations, while the rapid growth of Indian cities and the emergence of new mega-regions in China is creating new centres for occupier expansion.
The Indian cities of Bangalore and Hyderabad are expected to be two of the three fastest-growing Asian cities between 2020 and 2024. In China, Shenzhen and Guangzhou should also outperform both the national and Asia city averages.
Noting the dynamism of the region’s urban centres, Andrew Haskins, Colliers’ Executive Director of Research in Asia, observed: “Growth in Asia is driven by cities as much as countries. This was demonstrated by the firm investment activity recorded by many leading Asian cities in 2019 despite the uncertain conditions. While underlying trade issues may continue, persistent loose monetary conditions should raise confidence among both occupiers and owners.”
Office sector: Top locations remain resilient
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.
Investment markets: Big city grit
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. 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 situations, 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/industrial sector and data centres: Higher returns, but correct strategies vital
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.
Flexible workspaces: Reinvention key to expansion
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.
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