After several years of steady growth, Asia Pacific real estate continues to produce strong returns, but caution is increasingly embedded into investor strategies, according to Emerging Trends in Real Estate Asia Pacific 2020, a real estate forecast jointly published by the Urban Land Institute (ULI), a nonprofit education and research institute and PwC.
Singapore, Tokyo, Sydney and Melbourne are ranked as four of the top five markets for investment prospects, reflecting investor preference for regional markets that are large, liquid, and defensive. The fifth market, Ho Chi Minh City, is the lone emerging market to be viewed favourably due to its strong economic growth as it absorbs Chinese manufacturing capacity moving offshore.
“The findings in Emerging Trends reflect the prevailing sentiment throughout the industry that real estate in general is entering a period of slower growth,” said Nicholas Brooke, ULI Asia Pacific Chairman. “The major markets that are ranked highest offer significant numbers of core assets that are the preferred targets of regional institutional investors. We can expect this emphasis on core properties to continue as the market cycle changes.”
“This year’s report shows how investment interest in today’s uncertain global environment is moving towards more mature economies such as Singapore, Tokyo, Sydney and Melbourne,” said KK So, Asia Pacific Real Estate Tax Leader, PwC. “Investments from the west into in Asia Pacific have waned, but the Asia Pacific-based investors are increasingly investing in markets within the region, which presents a healthy pipeline of investment prospects for the region moving forward.”
Details on the top markets for investment and development in 2020:
- Singapore (first in investment, second in development) – The Singapore office sector has now largely absorbed excess supply and was one of the few markets in 2019 to see a surge in transactions, driven in part by cross-border capital.
- Tokyo (second in investment, fourth in development) – The Japanese capital continues to offer one of Asia’s most liquid markets. Record low Japanese interest rates keep borrowing costs the lowest in the Asia Pacific region and have created a good spread over the cost of debt despite the compressed cap rates.
- Ho Chi Minh City (third in investment, first in development) – Ho Chi Minh City offers strong economic growth, a positive demographic profile, and is benefiting from growth of the manufacturing industry as an economic driver.
- Sydney (fourth in investment, third in development) – Sydney continues to be a relatively liquid and mature market with numerous high-quality assets, a stable economy and higher cap rates than can be found elsewhere in the Asia Pacific.
- Melbourne (fifth in investment, fifth in development) – With ongoing cap rate compression and the lowest office vacancies in Australia, Melbourne continues to be one of the first places institutional investors look to place capital. Favourable demographics and a diverse local economy mean that office rents should continue to trend upwards over the next five years.
The report is based on the opinions of more than 460 real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.
Meanwhile, real estate consultancy JLL expects real estate investment in Asia-Pacific to outperform other regions in 2020.
“Over the next two years, we expect global real estate transaction volumes to stay elevated and Asia Pacific to outperform Europe and the Americas with an outsized portion of global investor interest" Stuart Crow, chief executive officer of Capital Markets Asia Pacific, JLL, said.