2020 will present both opportunities and challenges for commercial real estate investment. To help you prepare for what’s next, we’ve summarised some of our key predictions in this infographic. There will be more insights on these trends in the months ahead, but here we take a high level look at the outlook for 2020.
The Economic Outlook
In general, the economic outlook for Asia Pacific remains positive, but sub-trend. What this means is that at the regional level, economic growth is expected to remain somewhat subdued at around 4.3%, similar to 2019, but below the longer run average (2010-18) of 5.4%.
Cyclical headwinds persist, but structurally Asia Pacific is well-positioned through strong demographic fundamentals and rapid infrastructure expansion to name but two long-term positives. It is worth nothing that the expected 2020 growth figure of 4.3% is much stronger than that forecast for the United States, (1.7%), the United Kingdom (1.0%), and the European Union (1.4%).
Investors & Landlords
Labour markets continue to hold up very well, with unemployment in most countries across the Asia Pacific region expected to be under 5% in 2020. Furthermore, the vast majority of countries are forecast to post positive employment growth, with nearly half forecast to see total employment growth accelerate in the year ahead. This should provide ongoing occupier demand for commercial real estate space, a real positive for landlords.
On the investment side, 2019 was another strong year with around USD140bn invested in office/retail/industrial assets across the region. This is a little down on the 2018 peak ($154bn) but still above levels recorded over 2012-17.
Pricing has remained strong with yields mostly flat for the year. Abundant equity is still targeting commercial real estate, and so the question is more around the potential availability of stock on market rather than purchaser appetite. Government 10-yr bond yields fell in 2019, providing ongoing support for real estate investment. Ongoing tenant demand, abundant capital and relatively low interest rates suggest that the investment market should remain active over the year ahead.
There are also windows of opportunity for corporate occupiers across the region. With leasing activity starting to slow in many markets, landlords are becoming more willing to negotiate – for example see our recent Australian Outlook. Furthermore, the supply tap is now firmly turned on and continues to flow, with over 600 million sq ft of space under construction as of Q3 2019. While the timing of completion of this supply varies by market, occupiers should have a good range of choice of either new space or backfill space from which to choose.
As a result, the pace of rental growth is likely to slow and we have seen some markets turn tenant friendly over the past year. Currently 16 markets are estimated to be tenant-friendly, 3 are neutral and 11 are considered landlord-friendly which leaves the Asia Pacific region, as a whole, relatively balanced.
Strategy and Innovation
More widely there are other key trends for the industry at large to keep an eye on. Expect continued growth in the China+ manufacturing strategy of corporates, something we highlighted in our recent Demographic Shifts report. We expect this to benefit South East Asia especially, but also note that the industrial sector is growing rapidly in India.
On the technological front, 5G trials are starting in Australia, Singapore and India with many excited to see what opportunities this may bring. Finally, expect “experience” to come to the fore, whether it is “experiential retail”; “experience in the workplace”; or the search for “experienced” talent – experience counts!
So, while we keep a cautious eye on potential downside risks, there remains a lot to be positive about with opportunities for investors and occupiers across the region.
If you would like more information about any of these trends, don’t hesitate to get in touch.