Real estate survey 2014: Asia – China takes back seat in Asian real estate
The weakness of the Chinese market has prompted the Asian real estate industry to look elsewhere for returns in 2014.
Most of the time, when discussing Asian business, China hogs the limelight. So it is a novelty in the real estate industry that a sluggish Chinese market is allowing some of its regional counterparts to take centre stage.
“China is weak domestically,” says Piers Brunner, CEO, Asia, at real estate services company Colliers International. “Debt financing is still difficult, especially in China.”
Brunner says the most obvious trend in real estate finance is for offshore investment.
“This continues, and the next wave is smaller cap developers and investors looking offshore,” he says. “The bulk of the money is from mainland China… however Singaporean, Taiwanese, Korean and Hong Kong money is flowing too. The hotspots are still the UK – read London – and Australia, plus the USA.”
The Asian investor
market that is most interesting is Japan and we predict continued interest in most sectors
While Hong Kong had a slight increase in volumes in the second quarter, Brunner is uncertain whether it is the start of a sustained bounce back in the market.
“The Asian investor market that is most interesting is Japan and we predict continued interest in most sectors; office, residential and industrial,” says Brunner.
Chris Brooke, executive managing director, consulting, Asia Pacific, at real estate services company CBRE, says that in commercial property, there has been a drive for yield so investors have been focused on markets like Australia, but he also highlights Japan.
“We have seen an interest in markets such as Japan because of factors such as improved economic conditions and positive sentiment supported by events such as the granting of the Olympics to Tokyo,” says Brooke. “There are also good arbitrage opportunities in that market and you can service debt relatively cheaply.”
According to Brooke, CBRE continues to see interest in China, but the challenge is how to deploy capital: investors have had to resort to building their own projects rather than buying. He also expects more positivity in India after its recent elections.
“In the second half of the year, we would expect that investors may be slightly more selective and that some yield compression may occur in relation to core assets,” he says. “In China, people are waiting to see what will happen on the broader economic side. Across the region, we expect that buyers will be more patient as they look for correct entry points, and at the same time vendors will be in no rush to sell as a result of relatively low holding costs. This may result in transactions taking longer to complete.”
There is extremely positive investor sentiment for the logistics space throughout Asia
Mark Gabbay, co-CEO Asia Pacific, at LaSalle Investment Management, expects a steady deal flow for Asia over the rest of the year and some large office-building sales over $1 billion in Tokyo. He also says the firm will continue to monitor the potentially distressed situation in China.
“We see the continued search for high-quality income buildings in gateway cities, such as Tokyo, Seoul and Sydney, due to the ongoing demand for stabilized core assets,” says Gabbay. “In addition, there is extremely positive investor sentiment for the logistics space throughout Asia as a hedge to the impact of the internet on retail and performance of the asset class through the economic cycles.”
A source at another large real-estate company highlights the shortage of modern logistics facilities in markets such as China, which is driving demand.
“Our business continues to be driven by sustainable, secular trends, not cyclical ones,” says the source. “In China… the demand for distribution space continues to closely track increasing consumption, and the need for supply chain efficiency drives growth in demand for modern, well-located facilities. The supply of modern logistics space is far behind occupier demand in all of our markets.”
Euromoney's 10th annual real estate survey canvassed the opinions of real estate advisors, developers, investment managers, corporate end-users and banks worldwide. It asked respondents which firms they thought were the best providers of real estate products and services in their market over the 12 months up to May 29.
Colliers International finished top of the advisors and consultants category for Asia, just ahead of CBRE in second place and Jones Lang LaSalle in third. Global Logistic Properties topped the Asia developers category and HSBC came first in the Asia banks category. LaSalle Investment Management finished top of the Asia investment managers category, ahead of Blackstone in second.
Despite the relative weakness of the Chinese market, there are still plenty of opportunities in Asia’s real estate sector: countries such as Japan and Australia have stepped in to fill the gap.