Singapore presents the best prospect in the Asia-Pacific region for investment, according to “Emerging Trends in Real Estate Asia Pacific 2020”, a real estate forecast jointly published by the Urban Land Institute (ULI) and PwC.
The city-state saw a surge in transactions in 1H2019, mostly driven by cross-border capital, and volumes are expected to remain strong in 2H2019. With a glut in office supply absorbed, sentiment for Singaporean assets has now rebounded from the lows of 2017.
With vacancies now minimal, investor confidence has returned, with foreign investors leading the charge as buying activity surges, according to the report.
“As recently as our 2017 report, Singapore placed just 21st in our investment rankings, underlining how quickly the tides can shift,” says ULI’s global CEO, Edward Walter.
City Investment Propspects 2020 (Source: ULI)
Tokyo, Sydney and Melbourne also placed within the top five, reflecting overall investor preference for regional markets that are large, liquid and defensive, the report states.
Meanwhile, Ho Chi Minh City, in third place, is the only emerging market that investors viewed favourably due to its strong economic growth as it absorbs Chinese manufacturing capacity moving offshore. The city is also in first place for city development prospects for 2020.
City Development Prospects 2020 (Source: ULI)
Aside from Ho Chi Minh City, only Bangkok and Mumbai – ranked at 11th and 12th for investment prospects respectively – were among the emerging-market cities that made it to the top 10 for development prospects.
ULI anticipates that with fears of recession looming in the US, investors will always be wary of emerging markets, as past experience showed that in times of economic uncertainty, illiquidity and currency volatility make these markets unsafe for investors.
Focus on ESG
Walter observes that the ongoing US-China trade war has undoubtedly had an impact on real estate investment globally. Based on the report’s findings, trade wars emerged as the most problematic issue for real estate investors, ahead of low yields and global economic growth. “Many MNCs are now putting their expansion plans on hold,” he notes.
Most Problematic Issues for Real Estate Investors (Source: ULI)
When it comes to property prices, he points out that most markets are still in relative balance to market fundamentals. The exception are markets like Hong Kong that has been reeling from the impact of the ongoing street protests.
Against this backdrop, investors are taking a long-term view by focusing on environmental, social and governance [ESG]. “One thing that has changed is that ESG, in particular sustainability, is becoming more prominent. Developers and owners are paying more attention to this than in the past and it is a trend that’s only going to continue,” he says.
From an investing perspective, he notes that this shift started in Europe and it moved to America and the Asia-Pacific. He elaborates: “Investors are now at the point where they really want to know that a company has a strategy around those issues. Otherwise, they are not comfortable to invest.”
ULI's Edward Walter (Credit: Albert Chua/The Edge Singapore)
Thus, companies are now paying attention to these issues. “For a lot of companies, a lot of the carbon impact is from the real estate that they use and so companies are interested in being located in buildings that have been certified to be environmentally responsible. This is regardless of whether they are looking for an office, residential, retail or industrial space,” he adds.
Office sector most popular
Meanwhile, Walter believes that the office sector will continue to be the most popular among investors in the Asia-Pacific region. He points to the report’s findings that the huge lot sizes in Asia-Pacific markets mean that more properties are being sold to joint ventures or investment clubs.
In addition, the office sector will be buoyed by the inflow of institutional capital for core properties in regional markets.
Walter expects that demand for co-working spaces will continue to remain strong in most Asia-Pacific markets. While naysayers question the sustainability of the co-working business model following WeWork’s failure, he believes that co-working satisfies a need for agile workspaces.
And increasingly, landlords are entering joint ventures or investing in co-working operators in order to expand their share of the co-working market, he adds. This is in contrast to leasing vacant office space to co-working operators on a sub-leasing basis.
“The technical barriers [for starting a co-working space] are relatively low because if you have space, it doesn’t take that much to create a co-working environment. I’d say the bigger issue is around the branding of the co-working operator providing it. Brand value takes a while to build,” he explains.
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