Steady recovery for Asia Pacific property markets from
2013 on: DTZ
28 Dec 2012 07:41
Most Asia Pacific property markets remain attractive to investors, but this has yet to feed
through to investment volumes, says DTZ in its latest Annual Outlook report, which nevertheless
forecasts a steady recovery from 2013 onwards.
The report reveals that the impact of the downside scenario on the majority of Asia Pacific
markets is relatively mild, as rental growth remains positive.
Kuala Lumpur and Delhi are
however, impacted by weak
demand combined with a
substantial office pipeline.
Sydney and Tokyo are least
impacted from a downside
scenario up to 2014.
Rents in some of the most
affordable centres in the
region, particularly,
secondary markets in India,
are the most affected under the downside scenario. DTZ says this is likely triggered by dwindling
demand for outsourcing services.
Affordability for existing tenants in Hyderabad and Chennai would improve significantly under the
downside. In contrast, there is little impact on most of the least affordable markets, such as
Sydney, Perth and Tokyo. In either scenario, there is little scope for cost savings for occupiers in
these markets, says DTZ.
Hans Vrensen, global head of research at DTZ, and lead author of the report, says: “Under our
downside scenario, the Asia Pacific markets show a period of capital value decline. The office
sector is hit hardest but recovers fastest, with values up 2 per cent by 2017.
"Office and retail assets fare better under all three scenarios compared to the industrial sector,
which is hampered by weak global demand for consumer goods Looking at the upside scenario,
offices offer the highest potential gains as tenant demand is expected to turn quickly. This will
require a significant recovery in the western economies, due to multinational and local
corporations committing to new expansion plans.”
At present, 39 of 71 covered markets in Asia Pacific are classified as hot in Q3, based on DTZ’s
Fair Value Index. In addition to Beijing and Shanghai, many second-tier Chinese markets are
offering investors good relative value.
Across South East Asia, solid growth remains driven by strong domestic demand and
investment spending, attracting overseas inflows. Of the core markets, Australia offers investors
a large spread between property yields and government bond yields. Investors are also targeting
Japan, attracted by the potential of recovery.
The attractiveness of the Asia Pacific markets is yet to feed through to investment volumes,
says DTZ, mostly due to a reduction in sales activity in China, triggered by more restrictive
government policies on a range of different fronts.
"Looking further ahead, solid property fundamentals and the diversity offered by Asian real estatewill continue to attract investors to the region. Based on this, a gradual recovery is expected
from 2013. However, the general lack of high quality, investable product remains a lingering
issue in many markets. This means that seizing opportunities at the right time presents a
challenge," it says.
DTZ’s report also highlights that to secure excess returns with sufficient deal choice in Asia
Pacific, non-core needs to be the focus for investors in the near future.
The general lack of high quality, investable product remains an issue in many Asia Pacific
markets and investors need to look beyond core markets for a wider range of opportunities and
more upside growth potential, says the report.
David Ji, head of Greater China Research at DTZ and co-author of the report says: “Occupier
demand has held up well in the face of global weakness, supported by non-financial services
tenants, with net absorption in 2012 above 2009 levels.
"Furthermore, prime office rents in many non-core markets continued to rise in 2012. Looking
forward, the eurozone uncertainty is likely to continue to hold back many occupiers from
committing to large amounts of space quickly. We believe it will trigger a shift towards more
demand for near-prime space as occupiers continue to seek value for money.”
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