At #ULIFall, member leaders from #AsiaPacific discuss about the shifting tides of geopolitics , demographics and users demand and how they impact #RealEstate. @UrbanLandInst @ULI_AsiaPac pic.twitter.com/gYvoasSf5e
— May (@May__Chow) September 20, 2019
Despite the shock of a trade war between the United States and China, the economies in the vast Asia Pacific region are projected to keep growing—as are the opportunities to invest in commercial real estate. Huge investments in infrastructure are helping keep these economies growing.
“The extent to which the Chinese government is investing in assets and infrastructure in emerging markets is astonishing,” said Richard Price, senior adviser for the Accord Group, based in San Francisco. Price was one of a panel of speakers at a ULI Fall Meeting session titled “View from the Asia Pacific Region: Finding Value in the Shifting Tides of Geopolitics, Demographics, and User Demand.”
As the United States places tariffs on goods from China, and that country responds with tariffs of its own, capital continues to flow between nations in the Asia Pacific region, and between the region and the rest of the world.
“Everyone is suffering because of the U.S.-China dynamic . . . the U.S.–China trade war,” Price said. “We are already starting to see the long-term damage on U.S. multinational companies . . . that loss of market access as U.S. multinationals are no longer being asked to participate in the Chinese economy.”
Giant infrastructure investments continue to link economies in the Asia Pacific region, such as the US$5.9 billion China–Laos high-speed rail link or the US $1.3 billion Kyaukpyu deepwater port in Myanmar.
If Asia’s infrastructure of roads, rail, and ports is catching up with that in the West, its technology infrastructure may be racing ahead. For example, consumers in China make a greater share of their purchases over smartphones than do consumers anywhere else in the world. “You’ve got no legacy infrastructure to deal with,” said Price. “Much of the region didn’t see deep penetration of fixed–line telephones.”
Infrastructure investments like these are helping capital move among the countries in the region. “The biggest change in the course of my career in Asia Pacific real estate has been capital formation—asset values and the growth in physical stock,” Price said. “Today, the most active investors throughout the region are domestic.”
Economic Growth Spreads in Southeast Asia and India
The economies in the Asia Pacific region are growing quickly overall. Over the past decade, that growth has been led by the Chinese economy, and its gross domestic product is projected to grow to US$22.7 trillion in 2023. That is approaching the size of the U.S. economy and is larger than the combined economies of the European Union’s Eurozone.
India also is growing quickly, as are the combined 10 economies of the Association of Southeast Asian Nations (ASEAN). On average, the ASEAN countries have seen their economies grow by an average of about 5 percent per year. “Gross domestic product is expected to grow by leaps and bounds in the next five years,” said Choon Fah Ong, chief executive officer of Edmund Tie, based in Singapore.
The size of the commercial real estate market is also growing quickly. The commercial real estate market in China recently became larger than that in Japan, with US$25 billion in transactions closed in the first half of 2019, compared with US$20 billion in Japan and US$133 billion in the United States over the same period.
“The next market that we think will really take off is India,” said Megan Walters, head of research for JLL Asia Pacific.
Commercial real estate investors have brought more than US$130 billion into the Asia Pacific region over the past three years, from Europe, the United States, and the rest of the world. The top 10 cities for cross–border commercial real estate investment include Shanghai, Singapore, Hong Kong, and Sydney. Roughly the same amount of capital, US$135 billion, went from Asia Pacific into the rest of the world over the same period.
Income from commercial real estate investments is rising also. Rents are rising by an average 3.8 percent a year for commercial real estate properties across the region, according to JLL. That ranges from the average office rents in Singapore, which rose more than 12 percent over the last year, to the rents in cities like Shanghai and Jakarta, which have fallen as giant new blocks of office space fill. “Asia Pacific is very much sitting in line with what we see elsewhere,” said Walters.
“What everyone is after is diversification and being part of some of that big growth rate,” Walters said.