APAC real estate to remain highly competitive in a global context
20 December 2012
News, Asia, Global
By Asia Asset Management
Elysia Tse, Aviva Investors’ head of real estate investment governance, strategy & research for Asia Pacific believes that Asia-Pacific real estate is set to outperform other regions in 2013. In the near term, risk aversion is still evident among investors, resulting in continuing popularity of income-producing assets in prime locations among core investors.
Evidence suggests that the performance of Asia Pacific real estate is expected to remain highly competitive in a global context, despite a few countries contracting recently due to headwinds in the macro-economy. Year-to-date, Asia Pacific is the only region that has seen commercial real estate transaction volumes return to their 2006 levels, according to Jones Lang LaSalle as at Q3 2012. Strong demand for Asia Pacific real estate from local and regional investors is expected to continue, and interest from the US and European investors is increasing, driven by low cost of capital globally and the region’s superior growth potential.
Asia Pacific is expected to remain the highest growth region of the world, supporting real estate demand in the long term. With relatively low risk-free rates in several Asia-Pacific countries, investors will find accretive returns. Capital values are projected to remain relatively stable over a five-year horizon with upside potential over the next two-to-three years.
Hong Kong: The office market in Hong Kong Central started seeing slight increase in rents in November and Aviva Investors is optimistic that Singapore will be following the same trajectory with a lag. On the back of the ongoing recovery of the office market, office returns in Hong Kong are expected to improve notably in 2013. Aviva Investors believe it is a good time to consider value-added strategies in Hong Kong office.
Singapore: The occupiers market in Singapore has taken a turn for the better after seeing two consecutive quarters of improved vacancy rates. The city-country should see long-term sustainable growth with supportive government policy, a transparent business and legal environment and relatively low cost of occupancy amongst global gateway cities. All of these are expected to attract multi-national companies to establish regional headquarters in Singapore over the long term. Singapore should also benefit from the recovery in Asia and the pickup of China’s economy. As a result, Aviva Investors favour cyclical opportunities in the office sector and long-term opportunities in the non-discretionary retail sector.
Japan: Aviva’s take on Japan is that Tokyo, in comparison with the rest of Japan, still looks attractive with bustling economic activity in the city, the country’s earthquake rebuilding and the Bank of Japan attempting to push inflation to the 1% range.
Australia remains attractive over the long term, despite some near-term weakness. Aviva believes that pessimism stems mainly from the domestic market while the country still sees healthy investment and interest from foreign investors. Australia’s GDP of 3.1% (as at 3Q 2012) is stronger than most mature economies in the world. The economy will be supported by China’s expected economic pick-up in 2013. Additionally, yields in Australia are still relatively high by historical comparison, while yields in major markets in the US and UK are near or at cyclical lows despite their relatively weak fundamentals.
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