Risks in the property investment market are clearly up but with the return of lower interest rates, structural changes driving occupier demand and a tight supply of the right space, the market is far from being bereft of opportunities. But where can they best be found?
In our Winning in Growth Cities 2019/2020 report, we examine global commercial real estate investment activity from the past year and predict which will be the winning city markets in 2020.
In Asia Pacific, growth may be set to slow further next year whether looking at consumption or employment figures, but overall will remain attractive on a global basis and more foreign capital is likely to flow towards the region. Occupier markets are mixed, with some seeing increased supply and others slowing demand, but the market offers a wide range of cities as investment options and sector-by-sector there are attractive areas for short- and medium-term returns. These may be in still demand-driven parts of the CBD office market, the largely undersupplied logistics sector, or demographically driven residential markets.
Winning City Markets in Asia Pacific
Resilient markets in terms of their balance of supply and demand include Tokyo, Osaka, Singapore, Sydney, Melbourne and Beijing, with core locations and strong covenants favoured. For logistics, growth in demand is widespread and land prices are strong as a result, with Singapore, Sydney, Tokyo, Osaka, Shanghai and Beijing well positioned for performance but short of up-and-built stock. In a slowing economy meanwhile, turning to residential opportunities will bear fruit, driven both by demographic changes and increased rental demand due to affordability constraints, with cities such as Tokyo, Osaka, Shanghai, Beijing and Sydney currently leading the way. However, stock is limited and hence development will be the main route into the market.
With China seemingly set for a period of slower growth, much of Asia will feel a chill, but some relative winners are likely among low cost producers such as Vietnam, Malaysia and Pakistan or more advanced tech markets such as Taiwan.
Geopolitical impacts are also likely, favouring Singapore as an independent, reliable base for business in the region or India as a growing powerhouse with supportive fiscal policy, although tensions over Kashmir may have some impact.
China as an Attractive Market
As a deep market across a range of cities and sectors, mainland China remains an attractive market for investors. While for some, the current market is challenging, with softer demand and restricted availability of debt, long term prospects are good and there are emerging opportunities for well-financed buyers as some vendors seek to restructure their portfolios. There are opportunities in tier 1 and select tier 2 cities for short- to medium- term investors and the winning markets tend be where supply is relatively modest, notably Beijing, and/or where pricing is comparatively attractive, such as Guangzhou and Chengdu.
For mid- to long- term investors, opportunities also lie in cities with extensive infrastructure development and rapid socioeconomic growth but higher levels of supply such as Shanghai and Shenzhen.
Hong Kong meanwhile is another victim of geopolitics with social unrest impacting tourism and services, and likely to affect business and investment decision making if it drags on. Ongoing trends such as catering for affordable rented residential, business decentralization due to high costs and the growth of co-working will however reassert themselves as stability returns.
For more investment insights into growth cities across Asia Pacific, download the Winning in Growth Cities 2019/2020 report here.