Good outlook for Asia Pacific commercial real estate
11 March 2013
News, Asia, Global
By Asia Asset Management
Aviva Investors says prospects for the global commercial real estate asset class are improving on a global basis, with Asia Pacific offering the highest potential returns, and other attractive opportunities to be found selectively elsewhere.
In Asia Pacific returns are expected to pick up this year, driven by stronger occupier demand and growing investor interest. Most central banks in the region are likely to maintain accommodative monetary policies in line with the US and Europe. Australia, with relatively stable and high yields, looks attractive over the long-term, although weakness is possible in the near term. And even though the medium to long-term outlook in Japan is threatened by weak demographics, cyclical factors provide an opportune entry point for Tokyo offices.
Elysia Tse, SVP of strategy and research for Asia Pacific real estate at Aviva Investors said: “We believe it is the right time to selectively take on more risk in Asia Pacific. Most governments in the region enjoy a low debt burden, giving them room for fiscal stimulus, which is expected to trickle through to businesses and consumers and ultimately boost the region’s real estate demand. Additionally, the low cost of capital globally and the region’s long-term growth prospect continue to drive investor demand, supporting Asia Pacific real estate capital values over the next few years. With that said, investors need to be comfortable with the risks to be taken prior to execution.”
Strong selective opportunities on a global basis
Aviva Investors also believes that the prospects for real estate are improving on a global basis:
In the UK, Aviva Investors has also improved its medium-term outlook and now forecasts an average annual return of 8% for the five years of 2013 – 2017. When looking at the five year period from 2012 at this time last year, the team had forecast 6% or less.
In the US, there is significant scope for the recovery to broaden and robust returns over the next five years are expected from commercial real estate. Occupier market fundamentals are improving, banks continue to ease their lending standards for commercial real estate and relative pricing remains favourable.
Within Europe, high quality assets with secure income streams in Germany and the Nordics are preferred. Prime Irish real estate may now also provide attractive opportunities.
David Skinner, chief investment officer of real estate at Aviva Investors concluded: “Given that investors’ risk appetite is increasing and real estate looks relatively cheap, selective strategies in higher-yielding sectors are likely to drive performance over the next five years. Globally, we expect Asia Pacific to offer the highest returns of all global regions in the medium term but well-advised investors are likely to find attractive strategies in most major markets.”
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