Asia-Pacific offers significant commercial property investments

KUALA LUMPUR: The Asia-Pacific property market is expected to continue to draw investors in the coming months, according to the DTZ Asia Pacific Fair Value 1Q11 report.

The Asia-Pacific market, which saw its overall Fair Value Index (FVI) rise to 65 in the review quarter from 57 in 4Q10, will offer significant commercial property investment opportunities in the coming quarter, said property consultancy DTZ.

“The latest FVI score shows investors having a diverse range of options for attractive property returns across Asia, with many prominent markets still presenting opportunities,” said David Green-Morgan, head of Asia Pacific Research.

The Asia-Pacific’s all-property rental growth outperformed global rental growth in 2010, while across the region, its rental growth averaged 6.7% compared with 2.6% globally. It is projected that from now till 2015, the Asia-Pacific and the global all-property rental will grow at an estimated 3.7% and 2.4% per annum (pa) respectively.

Overall, rental growth is expected to be less volatile, and also somewhat weaker than it was during the pre-recession boom, said DTZ.

“Bengaluru, Mumbai and Singapore are all expected to experience a surge in rents in the next five years. Australian markets are also forecast to have strong rental growth, with Brisbane and Melbourne expected to average rental growth rates of 3% pa over the forecast period. There are however, some cold markets where we see that pricing has moved out of line with fundamentals such as Hong Kong and Taipei. Investors therefore need to remain selective in their approach,” said Green-Morgan.

The DTZ FVI is intended to provide investors with insight into the relative attractiveness of current pricing in global commercial property markets. Its scores reflect the proportion of hot and cold markets, with higher scores implying more hot markets.

Markets estimated to be more than 5% under-priced are classified hot; markets more than 5% over-priced are classified as cold; and markets between this range are classified as warm.

Asia-Pacific capital values saw strong recovery in 2010, growing by 15.1%, which is more than double the global growth rate of 7.4%. A further 8.2% increase in value is projected in 2011. The office sector will see the highest increase, while growth will be weakest in the industrial sector.

Due to a few high-value markets such as Hong Kong where its retail and office are currently trading at historically low yields, overall capital growth will become increasingly limited beyond 2011.

As interest rates move higher, yields in these markets are expected to normalise in the medium term, affecting the headline figure for region-wide capital growth, said the report.

In 1Q11, Asia-Pacific total returns at 9% pa is higher than global returns at 8.8% pa.

The strongest returns came from the office sector with 10.2% pa, followed by retail at 8.5% pa and industrial at 7.8% pa.

Market fundamentals are expected to be more important in determining returns than the re-emergence of a “wall of money”, said DTZ.

According to the Asia Pacific FVI 1Q, there are currently 28 hot markets, up from 21 in 4Q10. The industrial score rose the highest, impacted by three Australian industrial markets that have been upgraded from warm to hot.

This is the result of higher forecast rental growth connected with a buoyant business investment outlook, said DTZ.

Several Indian markets have been upgraded this quarter due to improved expectations and the strong performance of the Indian economy. Among the upgraded markets is Delhi offices which is now rated a hot market.

The only market to have been downgraded in the review period is China’s Guangzhou retail, dropping to warm. Its yields fell to a historic low of 5.8%. Suffering the same fate of historic low yields are Guangzhou, Chengdu and Shenzhen prime office markets.

“Supported by a strong economic backdrop, the DTZ FVI scores indicate that investors in the region taking a medium to long term view can access several high yielding and high growth markets at a discount relative to pricing elsewhere. Excellent opportunities remain in the region despite evidence of markets showing the impact of high investor demand,” concluded Tony McGough, global head of Forecasting & Strategy Research.

This article appeared on the Property page, The Edge Financial Daily, June 17, 2011.

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