Emerging Trends in Real Estate® Asia Pacific 2012

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Survey Finds Investor Enthusiasm Throughout Asia is Tempered by Economic Woes in U.S., Europe

TOKYO (December 1, 2011) – Commercial real estate investment and development prospects remain questionable for Tokyo in 2012, as economic growth remains relatively slow, according to Emerging Trends in Real Estate® Asia Pacific 2012, a real estate forecast jointly published by the Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC).

Released today in Tokyo as part of a series of market forecast events being hosted by ULI throughout Asia, the report provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area. It is based on the opinions of more than 360 internationally renowned real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.

Interviewees concur that “2012 will be better than 2011” for Japan as a whole, with the reconstruction from the 2011 earthquake and tsunami expected to provide an economic boost. However, the report notes that long-term, sustained economic growth will be stymied by a shrinking workforce as the country’s population ages into retirement. Tokyo is ranked 17th for investment prospects and 18th for development prospects among the 21 cities covered in the report. While the city is characterized in the report as a “low-interest-rate, cash-available, secure investment,” it points out that “real estate fundamentals in this market remain a question…Much of the opinion indicated for Tokyo pointed to more-than-adequate capital but less-than-adequate avenues for investment – a lack of available properties and less-than-liquid J-REIT (Japanese real estate investment trust) stocks.”

For Asia Pacific as a whole, Emerging Trends points out that economic woes in the United States and Europe are weighing upon local economies across the region as well as upon investor sentiment in Asia and Australian real estate markets.

“Asia has no shortage of investment capital, and until the middle of 2011 there was more concern over inflationary pressures than lack of demand,” said ULI Trustee and ULI South Asia Chairman Simon Treacy. “Suddenly, however, the prospect of a global relapse into recession is creating mounting unease. There will be ongoing and significant uncertainty in the global and regional economies and real estate markets over the coming 12 months. Is this a crisis or an opportunity? It’s both. Asia has entered the twilight zone as there is still much to play out globally, given the debt and political issues in the U.S. and Europe, and the soft landing and credit crunch in China, all of which is reducing volume and pricing in the real estate market. It’s certainly time to reduce risk, focusing on cash flow as the report suggests.”

According to Hiroshi Takagi of PwC Japan Tax, although the outlook for Japanese real estate as a whole remains uncertain, his clients are still finding investment opportunities. He notes that Tokyo is a major economic center and the region's largest real estate market. "As a result of its market size and liquidity", he says, "we are still seeing capital inflows from foreign investors wanting exposure to Asia, and there are good opportunities, especially for those with a medium to long term investment horizon. Tokyo is still the place foreign investors want to be."

Top Investment Markets for 2012

Overall, respondents were slightly less positive about the outlook for Asia Pacific countries than a year ago. The report identifies the top five investment markets for 2012:

  • Singapore. Claiming the top spot for a second consecutive year, Singapore continues to become a truly global city with a burgeoning asset and wealth management sector. In turn, Singapore continues to experience strong immigration and growth in tourism. But respondents say the market may have peaked. They suggest a large pipeline of Grade A office buildings and lower growth rates in rents may hold down investor returns. Over half of the survey respondents recommended ‘hold’ in all sectors, when asked their opinion on whether 2012 would be an optimal year in which to ‘buy, hold or sell’ properties.
  • Shanghai is ranked second for investment potential for the second consecutive year The Chinese city with the largest gross domestic product continues to grow and attract institutional capital. Office space remains the key focus because of high demand and short supply, with an equal number of respondents choosing ‘buy’ and ‘hold’ in the office market. Retail growth is robust because of high domestic consumption, fueled in part by tourism, and over half of the respondents chose ‘buy’ for the retail sector.
  • Sydney. The stability of Sydney, with some of the lowest risk found in the Asia Pacific region, supports its high ranking for investment potential. In 2011 there was a surge in office development, with office demand showing signs of recovery. With investors finding good access to capital from multiple sources, acquisitions across all property types have remained active and are projected to continue into 2012.
  • Chongqing, included in Emerging Trends for the first time this year, is ranked fourth for investment prospects. One of the fastest-growing cities in China, Chongqing is home to some of China’s largest automobile and steel corporations, among other industries. With rising labor costs in the nation’s tier-one cities, second-tier cities such as Chongqing are seeing the benefit, boosting retail opportunities. Similar to Shanghai, over half the respondents gave a ‘buy’ recommendation for retail. Office stock is expected to increase dramatically over the next five years, far beyond the market’s absorption capability.
  • Beijing. Respondents reported being bullish on Beijing albeit conscious of the ongoing economic slowdown or “soft landing.” The commercial leasing market is strong, with a constant supply of new buildings being met with consistent demand and growing rents. The area is cultivating new, large start-ups, which, together with an abundant supply of capital, will support further construction. Recommendations for the office and hotel sectors focus on ‘hold’, and on both ‘buy’ and ‘hold’ for the retail and industrial sectors.

China remains the largest emerging economy although economic performance for 2012 is expected to slow and moderate over the next five years. With three of the five top cities for investment, China will be an important destination for investors, but the biggest question for foreign investors is whether they can get capital into the country given the central government’s fear over asset bubbles appearing in the real estate sector, respondents said.

India’s economy continues to produce the second-fastest growing GDP in the Asia Pacific region, just behind China, but developers face great difficulty raising capital through the nation’s banking system. Within the country, investment prospects are brightest for Bangalore; however respondents noted concern about the economy in general. Rankings plummeted for New Delhi and Mumbai, both affected by inflation concerns.

Across the Asia-Pacific region, the industrial/distribution sector is top-rated, followed closely by residential real estate, both for-sale and rental. Office and retail sectors are in the middle of the range, while the hotel sector is least favored for investment.

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About the Urban Land Institute

The Urban Land Institute (www.uli.org) is a global nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the Institute has nearly 30,000 members representing all aspects of land use and development disciplines.

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