Eurozone instability is casting a pall over markets across the Asia Pacific region. “Asia has no shortage of investment capital, and until the middle of 2011 there was more concern over inflationary pressures than lack of demand,” says Simon Treacy, ULI trustee and ULI South Asia chairman. “Suddenly, however, the prospect of a global relapse into recession is creating mounting unease. There will be ongoing and significant uncertainty in the global and regional economies and real estate markets over the coming 12 months.”
Following are the top five Asia/Pacific markets, as ranked by survey respondents for Emerging Trends Asia Pacific:
Singapore. Claiming the top spot for the second-consecutive year, Singapore continues to become a truly global city with a burgeoning asset and wealth management sector. In turn, the city continues to experience strong immigration and growth in tourism. But respondents say the market may have peaked. They suggest a large pipeline of Grade A office buildings and lower growth rates in rents may hold down investor returns. Over half the survey respondents recommended that investors hold properties—rather than buy or sell—in 2012.
Shanghai. Ranked second for investment potential for the second-straight year, the Chinese city with the second-largest gross domestic product continues to grow and attract institutional capital. Office space remains the key focus because of high demand and short supply, with an equal number of respondents choosing buy and hold as the best strategy in the office market. Retail growth is robust because of high domestic consumption, fueled in part by tourism, and over half the respondents gave a buy recommendation for the retail sector.
Sydney. The stability of Sydney, with some of the lowest risk found in the Asia Pacific region, supports its high ranking for investment potential. In 2011, there was a surge in office development, with office demand showing signs of recovery. With investors finding good access to capital from multiple sources, acquisitions across all property types have remained active and are projected to continue into 2012.
Chongqing. Included in Emerging Trends Asia Pacific for the first time this year, Chongqing is ranked fourth for investment prospects. One of the fastest-growing cities in China, Chongqing is home to some of China’s largest automobile and steel corporations, as well as large firms in other industries. With labor costs rising in the nation’s tier-one cities, second-tier cities such as Chongqing are seeing the benefit, boosting retail opportunities. Similar to Shanghai, over half the respondents gave a buy recommendation for retail properties. Office stock is expected to increase dramatically over the next five years, far beyond the market’s absorption capability.
Beijing. Respondents reported being bullish on Beijing, albeit conscious of the ongoing economic slowdown or “soft landing.” The commercial leasing market is strong, with a constant supply of new buildings being met with consistent demand and growing rents. The area is cultivating new, large startups, which, together with an abundant supply of capital, will support further construction. Recommendations focus on hold strategies for the office and hotel sectors, and on both buy and hold strategies for the retail and industrial sectors.
ULI-the Urban Land Institute