Market Outlook

Results for Q4 2017:

Knight Frank’s Asia-Pacific Prime Office Rental Index increased 0.7% quarter-on-quarter and 1.1% yearon-year in the last quarter of 2017.

The increase in the index was the result of rising rents in 12 of the markets over the quarter, with rental declines experienced in four of the 20 markets tracked.

Over the next 12 months, we expect rents in 16 cities out of the 20 tracked to either remain steady or increase, which is the same as our previous forecast.

We expect Singapore’s property market to stabilize and strengthen over 2018, supported by broad-based GDP growth and an expected multi-year upcycle in the office and residential markets.

Physical supply in office, residential and industrial sectors is also easing from the oversupply situation of past years. Capital flows should remain buoyant as we expect interest rates hikes to be benign, and yield spreads are relatively attractive. Barring external shocks, we project a general uplift in rents and capital values over 2018, primarily driven by the office and residential sectors.

This note highlights the key investment themes for 2018:

1. Economic growth accelerates, appreciating currencies: The Malaysian and Indonesian economies grew faster than expected in 2017 and we expect more positive surprises from these countries in 2018.
2. We expect a strong recovery in office markets in Singapore, Jakarta: Rents fell 20-30% over last three years, but expected to increase 10-25% over next three years. 
3. Residential prices could surprise on the upside in Singapore, Kuala Lumpur and Ho Chi Minh City.
4. Infrastructure spending accelerates in Malaysia and Indonesia: We expect the infrastructure projects, some of which are part of China’s Belt and Road Initiative, to support employment and growth.
5. Monetary policies expected to stay neutral-toaccommodative, supportive of growth: While advanced economies are wound down monetary easing in 2017, Southeast Asian governments surprised the markets by cutting policy rates amid inflation in 2017 to boost growth.
6. REIT changes to expand capital sources in Southeast Asia: We expect ten new REITs and potentially the first independent REIT in Thailand over the next two years.
7. Intra-regional capital flows likely to step up: There is rising interest from Japan, China and Korea investors for Southeast Asia assets; while Philippines, Thai and Malaysian groups are seeking to invest within Southeast Asia.
8. Malaysia, Indonesia and Vietnam likely to continue to attract strongest capital inflow: In 2017, Malaysia was the top receiver of capital in Southeast Asia, with US$421million in foreign investment, followed by Vietnam and Thailand.

The GPR/APREA AsiaPac Performance Snapshot tracks the dynamics of listed real estate securities (including REITs) across 12 AsiaPac countries/regions and eight sectors, over multiple time horizons.

•  Government bonds posted the least negative return in February 2018.
•  Equities and listed real estate were the strongest performers over the past five years.
•  On a ten-year basis, REITs outpaced rival asset classes, followed by listed real estate.

This article will investigate Investment into real estate – China

1. Legal Landscape
2. Foreign investment
3. Common foreign investment structure
4. Recent de-regulation of real estate FIEs
5. Other recent developments
6. Our observations on market

Just 160,000 square metres (sq. m.) of new and major refurbished supply is expected across Australia’s eastern seaboard markets of Sydney, Melbourne and Brisbane in 2018, representing less than 1.5% of existing stock. Of this space, the majority will be in Melbourne and has already been pre-committed. With business confidence in positive territory, we anticipate the uptake of stock to continue, despite limited availability in both Sydney and Melbourne. As a result, we expect vacancy to compress in all three markets, with Sydney forecast to be the tightest at approximately 3% by the end of 2018, the lowest level in over 25 years.

Occupier demand in the CBD reached the highest in 11 quarters in 4Q17, bring ing the full year CBD net absorption to the highest in three years.

Residential market remained optimistic in 4Q17. Transaction volume pf strata units in the prime districts eased slightly 1-o-1 due to the year-end holiday period. 

Retail sales excluding motor vehicles recorded over two consecutive quarters of growth, likely a result of the seasonal timed sales.

Amid stable stock and as tenants physically moved into their new premises, the business park vacancy rate eased for the sixth consecutive quarter in 4Q17.

The “Project of the Century” will provide enormous opportunities in the built environment over the coming decades

Over the last two generations, we have seen a familiar trend of rising wealth and influence in Asia. It started with the Japanese in the 70s and was followed by the Koreans in 90s and the South East Asian “Tigers” in the early 2000s. For the past decade, China and India have been among the powerhouses of world economic growth. Given their ambitions and scale, they are both likely to be important contributors for a very long time.

The Belt and Road Initiative (BRI) is one of clearest manifestations of China’s vision and influence. The infrastructure and investment underpinning the BRI will streamline trade flows and lift economic activity in much of Asia, the Middle East, and North and Eastern Africa. While the vision will bring huge opportunities for investors and developers, the BRI will also change the face of corporate China, which will have an enormous influence in the 21st century as Chinese brands become household names around the world.

This report aims to bring some clarity to the initiative, with Knight Frank’s research teams developing a Belt and Road Index to rank 67 countries according to a number of key criteria, along with local analysis from a significant number of BRI markets. Our analysis shows that opportunities are widespread, with improving bilateral relations between BRI countries and China providing potential for real estate investment, development and business expansion. No doubt the BRI will provide further impetus to corporate China’s growth and influence in global markets.

With this report, we are taking crucial steps in being able to provide the highest level of advice around tangible opportunities along the BRI. We hope you find the report useful and insightful.

Take a look through the sixth edition of The Occupier Edge, authored by Cushman & Wakefield’s very own future thinking experts. In this everchanging environment, you must stay on your toes – that’s exactly what we are doing. At Cushman & Wakefield, we put our clients and our people at the center of what’s next.

In addition to blockchain and co-working, this edition of The Occupier Edge also touches upon how PropTech is disrupting the real estate industry, the multi-faceted approach of placemaking, and why GenZ is the future. We also feature how robotics are being used to improve user experience and efficiency of facilities.

These are challenging times to be operating a real estate portfolio. Interest rates are starting to rise. Fundraising is intensely competitive. Property valuations have been increasing. Return expectations are falling. However, the findings of the 2018 Preqin Global Real Estate Report help to contextualize these issues within the broader climate, a climate where the asset class has flourished since the Global Financial Crisis (GFC) and delivered for the vast majority of investors that have sought greater diversification of returns within alternative assets.