Strong real estate fundamentals seen for asia in 2014, says emerging trends in Real Estate®Asia Pacific 2014; Singapore remains among top ten markets for investment

Survey from ULI, PwC Measures Investment and Development Prospects for Cities throughout Asia

SINGAPORE, 5 December 2013 – Singapore will remain a favored market in Asia for real estate investment and development in 2014, according to Emerging Trends in Real Estate® Asia Pacific 2014, a real estate forecast jointly published by the Urban Land Institute (ULI) and PwC.

The report, which is being released today in Singapore and at a series of events across Asia over the next week, 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 250 internationally renowned real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.

Emerging Trends notes that Singapore slipped to seventh place for 2014 from its third-place ranking for 2013 due to concerns regarding oversupply in some property sectors. Still, it points out, the city holds considerable investment and development appeal, due to its vibrant economic growth and strong emphasis on community livability.

For the Asia Pacific region in general, the report predicts that real estate fundamentals will hold strong in 2014, with stiff competition for conventional assets in prime markets boosting the popularity of niche property sectors and secondary markets. It notes that, unlike other asset classes, real estate in Asia “barely flinched” this year in response to the tapering of the U.S. economic stimulus and expectations of higher interest rates. This is due, in part to the increase in sovereign wealth and institutional capital being directed to Asian markets, as well as the substantial volume of Asian capital being exported from China, Singapore and South Korea into real estate assets across the region.

“While Asia’s robust market has been accompanied by higher prices and lower yields for core products, investors have reacted not by pulling away from real estate in Asia, but by finding new ways to make the numbers work, including a focus on specialised property types such as senior care or logistics, and on opportunities in emerging markets,” said ULI North Asia Chairman Raymond Chow.  “We do expect some headwinds as rising interest rates compress yields further, but overall, we are very encouraged by the optimistic view reflected in the report.”

Choo Eng Beng, Partner and Real Estate Leader, PwC Singapore said: “Singapore slipped off the top 5 spots for the first time since this publication first started in 2007. Varying market phenomena have stirred contradicting views towards its real estate outlook. On one hand, investing in real estate is getting more expensive due to the expected higher interest rate, compressed cap rates and tighter regulations. On the other hand, some see room for better returns with low vacancy rate and potential for higher rentals. Meanwhile, Singapore continues to be appealing as one of the most liveable and versatile cities in Asia as it has demonstrated that it can be adaptable to the changing environment. Another interesting point to note is the surge of investor interest in Manila that is aligned with the results of our APEC CEO Survey released earlier this year, indicating the Philippines as one of the top five dark horse economies that will likely be surprising us in the near future.”

The generally positive outlook for many markets throughout the Asia Pacific region is highlighted by the re-emergence of Japan (after a five-year absence from the top rankings) as a favored market for investment and development. The country is one of the largest beneficiaries of capital flows from other regions within Asia, notes the report. Its increasing popularity is attributed to the government’s massive economic stimulus plan, which has resulted in a flurry of property purchases in anticipation of rapidly rising prices. In addition to Tokyo, secondary cities in Japan, including Osaka, Fukuoka and Sapporo are gaining appeal among investors, notes the report. Outside of Japan, the survey found continuing interest in assets located in Asia’s emerging markets, including Jakarta and Manila. The reason, says Emerging Trends, is that as “cap rate compression continues to squeeze returns, and with higher interest rates seemingly just around the corner, investors are drifting to markets that can provide the kind of returns they are unable to tap elsewhere.”       

Top Investment Markets for 2014

  • Tokyo -- Claiming the top spot is Tokyo, which has emerged as an investment magnet soon after the introduction of dramatic economic reforms aimed at boosting the economy. Transaction volume picked up significantly in 2013 and, with the success of the stimulus program yet to be determined, buying is expected to continue next year. Tokyo is ranked second for development prospects for 2014. 
  • Shanghai – Shanghai, described as an “evergreen” market for investors, is ranked second for investment prospects. Despite cap rate compression and stagnant rental growth, real estate in the city continues to draw international investors because Shanghai is widely perceived as a well-known, low-risk market for those who are unwilling to venture into lesser-known cities. Shanghai offers a “level of comfort” to funds with a mandate to place money in China, says the report. The city is ranked fourth for development prospects. 
  • Jakarta – Jakarta is ranked third for investment potential, despite a lack of market transparency, and difficulties obtaining entitlement, and competition from local businesses and individuals. Newly released office stock in Jakarta is of better quality than in previous years, and there continues to be strong demand from companies seeking space, including the currently under-supplied central business district. Jakarta is ranked first for development prospects.
  • Manila – Manila moves up to fourth place for 2014, the result of a fast-growing economy, the increasing popularity of the city as a destination for multinationals seeking outsourced services, and a growing awareness that the problems long associated with lack of transparency and governance issues are improving. The city is also benefiting from a young demographic, strong capital inflows from local citizens working overseas, and a workforce with a cultural affinity with the West. Manila is ranked eighth for development potential.
  • Sydney – Sydney rounds out the top five markets, holding its appeal for both local and foreign institutional investors despite relatively weak fundamentals in its office and retail sector, and some concerns over the financial and mining sectors. Still, with a limited supply of office space in the pipeline, investors are bullish about the city’s central business district; and its residential sector has experienced a solid rebound. Sydney is ranked eleventh for development prospects.

 

Investment Prospects by Property Type

  • Industrial/distribution -- The industrial/distribution sector is the top-rated property sector for investment potential. Emerging Trends notes that the sector is undersupplied, due to extra demand for storage facilities being fueled by increased online consumer spending in Asia. Best bets for investments in industrial properties: China’s secondary cities, as well as Shanghai and Guangzhou.
  • Residential  -- Residential ranks second, although the report cautions about high prices affecting housing affordability, the likelihood of higher home mortgage interest rates, and the ongoing impact of government intervention in China to control further price increases. Best bets for residential investments: Manila, Tokyo and Jakarta.
  • Office – Office space is listed third for investment potential, with the mediocre ranking attributed to “fevered competition from too much investment capital fighting over the same deals, especially in core assets. Best bets for office investments: Tokyo, Manila and Jakarta.
  • Retail – The retail sector ranked fourth for investment potential, with some concerns being expressed about overbuilding in some secondary markets. However, opportunities in prime downtown locations still hold much promise. Best bets for retail investments: Manila, Jakarta, Tokyo and Shanghai.
  • Hotel – While hotels ranked fifth for investment potential, the sector is still seen as general solid, due to a rapidly growing tourism industry and relatively high yields. Tokyo leads as the best bet for hotel investment, as the city begins preparations to host the 2020 Summer Olympics.

 

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 more than 30,000 members representing all aspects of land use and development disciplines.

 

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