Outlook bright for Asia Pacific real estate players
Wednesday, 14 November 2007
OSAKA, Shanghai and Tokyo are considered top Asia Pacific cities in terms of real estate investment and development prospects, according to Emerging Trends in Real Estate® Asia Pacific 2007, published by the Urban Land Institute (ULI) and PricewaterhouseCoopers.
The report, distributed in a series of ULI events in Hong Kong, Shanghai and Tokyo recently, provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, property sectors, and metropolitan areas, and other real estate issues pertinent to the countries in Asia. It is the first-ever Asia Pacific version of the highly regarded annual Emerging Trends in Real Estate® investor survey, which has covered United States markets for 27 years and Europe markets for three years.
According to the new report, the Japanese cities of Osaka and Tokyo are rated as the first and third best markets, respectively, in which to both invest in and develop property. Rising investor enthusiasm and demand for property in those cities is indicative of the upturn in Japan's economy - still considered the most important in the Asia Pacific region, Emerging Trends notes. "A mixture of strong economic growth, an end to deflation, and the fact that, by Japanese standards, its markets are coming off a very low base has boosted investor interest in property assets from Tokyo to Osaka…Although factors that shape markets in Japan do not necessarily influence events in other regions, a resurgent Japanese market is a positive sign," says the report. "The sheer size of the Japanese property sector - by far the largest in the Asia Pacific region - makes it a magnet for those struggling to deploy their funds."
Based on the opinions of internationally renowned real estate professionals, emerging trends is one of the most respected and anticipated outlooks for the industry. The Asia Pacific version reflects interviews and surveys of more than 175 professionals, including investors, developers, property company representatives, lenders, brokers and consultants. Nineteen Asia Pacific markets are analyzed in the report.
Osaka's office, retail and industrial properties were highlighted by survey respondents as offering particularly promising investment prospects. Sixty-three per cent of those surveyed recommended buying office space in that city; 65 per cent advised buying retail; and 70 per cent advised buying industrial. For the apartment/residential sector, 46 per cent recommended buying; and the same per centage recommended holding. Nearly half the respondents, 48 per cent, advised buying hotel/resort properties, while 43 per cent recommended holding them.
Tokyo is on a "confirmed recovery path," says Emerging Trends, noting that the activities and transparencies resulting from Japanese real estate investment trusts have improved the quality and quantity of local market information. Sixty-four per cent of those surveyed recommended buying office space in that city; 72 per cent advised buying retail; and 67 per cent advised buying industrial. As in Osaka, the apartment and hotel sectors drew a higher per centage of those in favor of holding. Forty-two per cent recommended buying apartment/residential space; 45 per cent recommending holding. More than half of the respondents, 52 per cent, advised buying hotel/resort space, while 42 per cent recommended holding.
Survey participants gave Shanghai a high second-place rating, between Osaka and Tokyo, despite concerns over some aspects of the Shanghai market-including increasingly strained infrastructure, an oversupply of office space, and the potential for a housing bubble. Still, Emerging Trends interviewees remain enthusiastic about the city's investment and development prospects. "Retail is the number-one buy sector, and growing affluence in Shanghai should continue to propel this sector," the report says. Seventy per cent of those surveyed recommended buying retail space in that city, and several respondents noted that development of satellite towns around Shanghai will further fuel retail demand.
Sixty-four per cent of the survey respondents advised buying hotel/resort properties in Shanghai, and 62 per cent, industrial/distribution properties. Regarding the logistics sector, one respondent pointed out, "As China opens…and more goods are transported along the Yangtze, the need for more sophisticated supply channels is rising." Fifty-nine per cent recommended buying office properties, showing a vote of confidence despite already explosive growth in that sector. Shanghai's apartment/residential sector rated less favorably than the other property sectors-only 32 per cent recommended buying-possibly reflecting worries over a housing decline, the report notes.
The 19 Asia Pacific cities included in Emerging Trends fall into five general categories, based on each market's overall investment and development prospects, and on respondents' opinions about buying, holding or selling specific property types within each market. In the first category are the top five investment cities-in addition to Osaka, Shanghai and Tokyo, this group includes Singapore and Taipei. All are listed as offering promising opportunities to buy most property types. '"Go to these markets and buy if you can," is the message from survey respondents,' says the report. In the second group are strong development markets: Ho Chi Minh City, Bangalore, Mumbai and Shanghai. The third group consists of markets less strong as those at the top, but which still offer solid development and investment opportunities: Guangzhou, Bangkok, Beijing, Seoul, New Delhi and Kuala Lumpur. In the fourth group are the "hold" cities-Hong Kong, Melbourne and Sydney-all mature, with a great deal of transparency. The fifth category contains the challenging markets of Jakarta and Manila, which have relatively low investment and development ratings and limited interest from buyers.
In terms of favoured property types, the office sector is ranked highest overall, in terms of investment and development prospects in Asia Pacific cities. Singapore is listed as the top Asia Pacific city in which to buy office space, followed by Mumbai, Ho Chi Minh City, Tokyo and Osaka. The second favored property type for investment and development is the hotel/resort sector. New Delhi ranks as the best market for purchasing hotel and resort properties, with Mumbai, Ho Chi Minh City, Beijing and Taipei following. Retail ranks as the third most favored property type; and Mumbai, Tokyo, Shanghai, Bangalore and Osaka are listed as the top five markets in which to invest in or develop retail properties.
The industrial/distribution sector ranked fourth overall in offering investment and development potential, with Osaka, Bangkok, Tokyo, Ho Chi Minh City and Shanghai ranked as the most promising markets for that category. The home building and apartment/residential sector ranked lower than other property sectors for investment and development opportunities. Emerging Trends notes that housing demand is rising in many emerging markets in Asia, due to rapid urbanization, rising incomes, and a growing middle class. However, it adds, there is a considerable need for consumer education and cultural adaptations in these markets. Mumbai, Bangalore, New Delhi, Ho Chi Minh City and Guangzhou are listed as the top markets for apartment/residential properties.
In general, the report points to the influx of foreign capital that is continuing to swamp real estate markets throughout the Asia Pacific region, particularly fast-growing China. "While the money is flowing to many countries, interviewees single out China-the growth engine of the Asia Pacific-as the favored investment destination," Emerging Trends says. "People say…'Go get me a piece of China, I'm not interested in the details, just get me a piece.'"
While U.S. investors are the largest source of Asia Pacific real estate investment capital, the report notes growing investment from within the region and the Middle East. Currently, the targets for total annual returns range from 12.5 per cent for core investments up to nearly 24 per cent for opportunistic investments in the Asia Pacific region, it says. Emerging Trends points to the growth of real estate investment trusts throughout the region as a key investment capital source that is "bringing a measure of discipline to an environment in which the property sector has tended to be something of an exclusive club."
Assessing investment risk for individual projects is challenging, the report notes, due to the huge diversity across the region, in terms of market maturity, economic development, cultural background, and government openness to foreign capital. It cites risks associated with property title documentation, market transparency, rigid government regulations, and exit strategies. Still, despite these obstacles, Emerging Trends contends that "the future looks bright in 2007 for Asia Pacific real estate players of all types."
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ULI
The report, distributed in a series of ULI events in Hong Kong, Shanghai and Tokyo recently, provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, property sectors, and metropolitan areas, and other real estate issues pertinent to the countries in Asia. It is the first-ever Asia Pacific version of the highly regarded annual Emerging Trends in Real Estate® investor survey, which has covered United States markets for 27 years and Europe markets for three years.
According to the new report, the Japanese cities of Osaka and Tokyo are rated as the first and third best markets, respectively, in which to both invest in and develop property. Rising investor enthusiasm and demand for property in those cities is indicative of the upturn in Japan's economy - still considered the most important in the Asia Pacific region, Emerging Trends notes. "A mixture of strong economic growth, an end to deflation, and the fact that, by Japanese standards, its markets are coming off a very low base has boosted investor interest in property assets from Tokyo to Osaka…Although factors that shape markets in Japan do not necessarily influence events in other regions, a resurgent Japanese market is a positive sign," says the report. "The sheer size of the Japanese property sector - by far the largest in the Asia Pacific region - makes it a magnet for those struggling to deploy their funds."
Based on the opinions of internationally renowned real estate professionals, emerging trends is one of the most respected and anticipated outlooks for the industry. The Asia Pacific version reflects interviews and surveys of more than 175 professionals, including investors, developers, property company representatives, lenders, brokers and consultants. Nineteen Asia Pacific markets are analyzed in the report.
Osaka's office, retail and industrial properties were highlighted by survey respondents as offering particularly promising investment prospects. Sixty-three per cent of those surveyed recommended buying office space in that city; 65 per cent advised buying retail; and 70 per cent advised buying industrial. For the apartment/residential sector, 46 per cent recommended buying; and the same per centage recommended holding. Nearly half the respondents, 48 per cent, advised buying hotel/resort properties, while 43 per cent recommended holding them.
Tokyo is on a "confirmed recovery path," says Emerging Trends, noting that the activities and transparencies resulting from Japanese real estate investment trusts have improved the quality and quantity of local market information. Sixty-four per cent of those surveyed recommended buying office space in that city; 72 per cent advised buying retail; and 67 per cent advised buying industrial. As in Osaka, the apartment and hotel sectors drew a higher per centage of those in favor of holding. Forty-two per cent recommended buying apartment/residential space; 45 per cent recommending holding. More than half of the respondents, 52 per cent, advised buying hotel/resort space, while 42 per cent recommended holding.
Survey participants gave Shanghai a high second-place rating, between Osaka and Tokyo, despite concerns over some aspects of the Shanghai market-including increasingly strained infrastructure, an oversupply of office space, and the potential for a housing bubble. Still, Emerging Trends interviewees remain enthusiastic about the city's investment and development prospects. "Retail is the number-one buy sector, and growing affluence in Shanghai should continue to propel this sector," the report says. Seventy per cent of those surveyed recommended buying retail space in that city, and several respondents noted that development of satellite towns around Shanghai will further fuel retail demand.
Sixty-four per cent of the survey respondents advised buying hotel/resort properties in Shanghai, and 62 per cent, industrial/distribution properties. Regarding the logistics sector, one respondent pointed out, "As China opens…and more goods are transported along the Yangtze, the need for more sophisticated supply channels is rising." Fifty-nine per cent recommended buying office properties, showing a vote of confidence despite already explosive growth in that sector. Shanghai's apartment/residential sector rated less favorably than the other property sectors-only 32 per cent recommended buying-possibly reflecting worries over a housing decline, the report notes.
The 19 Asia Pacific cities included in Emerging Trends fall into five general categories, based on each market's overall investment and development prospects, and on respondents' opinions about buying, holding or selling specific property types within each market. In the first category are the top five investment cities-in addition to Osaka, Shanghai and Tokyo, this group includes Singapore and Taipei. All are listed as offering promising opportunities to buy most property types. '"Go to these markets and buy if you can," is the message from survey respondents,' says the report. In the second group are strong development markets: Ho Chi Minh City, Bangalore, Mumbai and Shanghai. The third group consists of markets less strong as those at the top, but which still offer solid development and investment opportunities: Guangzhou, Bangkok, Beijing, Seoul, New Delhi and Kuala Lumpur. In the fourth group are the "hold" cities-Hong Kong, Melbourne and Sydney-all mature, with a great deal of transparency. The fifth category contains the challenging markets of Jakarta and Manila, which have relatively low investment and development ratings and limited interest from buyers.
In terms of favoured property types, the office sector is ranked highest overall, in terms of investment and development prospects in Asia Pacific cities. Singapore is listed as the top Asia Pacific city in which to buy office space, followed by Mumbai, Ho Chi Minh City, Tokyo and Osaka. The second favored property type for investment and development is the hotel/resort sector. New Delhi ranks as the best market for purchasing hotel and resort properties, with Mumbai, Ho Chi Minh City, Beijing and Taipei following. Retail ranks as the third most favored property type; and Mumbai, Tokyo, Shanghai, Bangalore and Osaka are listed as the top five markets in which to invest in or develop retail properties.
The industrial/distribution sector ranked fourth overall in offering investment and development potential, with Osaka, Bangkok, Tokyo, Ho Chi Minh City and Shanghai ranked as the most promising markets for that category. The home building and apartment/residential sector ranked lower than other property sectors for investment and development opportunities. Emerging Trends notes that housing demand is rising in many emerging markets in Asia, due to rapid urbanization, rising incomes, and a growing middle class. However, it adds, there is a considerable need for consumer education and cultural adaptations in these markets. Mumbai, Bangalore, New Delhi, Ho Chi Minh City and Guangzhou are listed as the top markets for apartment/residential properties.
In general, the report points to the influx of foreign capital that is continuing to swamp real estate markets throughout the Asia Pacific region, particularly fast-growing China. "While the money is flowing to many countries, interviewees single out China-the growth engine of the Asia Pacific-as the favored investment destination," Emerging Trends says. "People say…'Go get me a piece of China, I'm not interested in the details, just get me a piece.'"
While U.S. investors are the largest source of Asia Pacific real estate investment capital, the report notes growing investment from within the region and the Middle East. Currently, the targets for total annual returns range from 12.5 per cent for core investments up to nearly 24 per cent for opportunistic investments in the Asia Pacific region, it says. Emerging Trends points to the growth of real estate investment trusts throughout the region as a key investment capital source that is "bringing a measure of discipline to an environment in which the property sector has tended to be something of an exclusive club."
Assessing investment risk for individual projects is challenging, the report notes, due to the huge diversity across the region, in terms of market maturity, economic development, cultural background, and government openness to foreign capital. It cites risks associated with property title documentation, market transparency, rigid government regulations, and exit strategies. Still, despite these obstacles, Emerging Trends contends that "the future looks bright in 2007 for Asia Pacific real estate players of all types."
......
ULI