CBRE: Weakening economic indicators may slow growth

HONG KONG: Despite noticeable improvement in investor sentiment and transaction volume in 3Q 3010, the weakening economic indicators could still have negative impact on growth, said CB Richard Ellis (CBRE) in its latest Asia Investment MarketView report.

"In particular, the risks associated with volatile exchange rates and monetary policy settings by major Asian governments remain a cause for concern," said Andrew Ness, executive director of CBRE Research Asia.

In the quarter under review, most major Asian real estate markets regained momentum after a brief period of uncertainty following the onset of the eurozone sovereign debt crisis. Direct real estate investment, excluding land transaction in Asia was an estimated US$18 billion (RM55.81 billion), up 53% quarter-on-quarter (q-o-q)

Overall, the region posted transaction volume of US$46 billion in the first nine months of 2010, a surge of 102% compared with figures posted a year ago.CBRE noted that the most liquid locations drew investors.

Hong Kong sits on the top of the list, with a investment volume of US$5.2 billion or 29% of the total regional volume. It was followed by Singapore and Japan, which accounted for 22% and 20% respectively.

China, South Korea and Singapore posted strong q-o-q increases in transaction volume, recording growth of 191%, 165% and 161% respectively. CBRE noted that institutional investors continued to display a strong appetite for prime investment property in these markets.

However, CBRE cautioned that the significant quarterly increase in investment volume could be partly attributed to the strengthening Asian currencies against the US dollar in 3Q 2010.

This has substantially inflated the overall volume in US dollar terms, said CBRE.

The quarter under review also a surge of real estate investment activity in Asia, accounting for US$3.1 billion which is an 80% q-o-q increase. However, this figure is still relatively low compared to the US$6.3 billion posted during its peak in 2007.

Investment by non-Asian investors rose markedly in 3Q 2010 to an estimated US$1.7 billion. Meanwhile, investment by institutional investors and Real Estate Operating Companies (REOC) rose 66% from a year ago.

The office sector drew the highest amount of investment with US$7.4 billion or 41% of the total 3Q 2010 investment volume. The sector also accounted for six of the ten largest transactions in 3Q 2010.

The most active office market were Singapore, Hong Kong and South Korea, collectively accounting for US$5.3 billion in transactions.

With the exception of Japan, office capital values continued to recover strongly in the 3Q 2010, and the rate of increase was noticeably faster than that seen in the previous two quarters, said CBRE.

The overall weighted average office yield fell for the fifth consecutive quarter by a marginal five basis points to 4.80%.

Retail assets investment also showed marked improved in the quarter under review, underpinned by robust domestic demand and rise in the number of inbound tourists

Transactions of major retail properties accounted for 24% of total investment turnover, amounting to US$4.3 billion. Japan recorded the largest proportion of retail investment in 3Q 2010 with US$1.7 billion.

Meanwhile, the industrial sector posted transaction for industrial assets amounting to US$1.1 billion. The figures are similar to that in 1Q and 2Q 2010 but jumping 65% year-on-year from US$668 million recorded in 3Q 2009.

Ness said that CBRE remains generally optimistic about the market outlook and continues to retain its earlier forecast that real estate investment in the region should reach a total of around US$60 billion for 2010.