DTZ: Chinese, Indian cities offer most attractive investment potential in office, retail sector

HONG KONG: Cities in China and India currently offer the most attractive investment potential, particularly in the office and retail sectors, according to DTZ’s annual Money into Property Asia Pacific report.

Some of the cities where investors can expect to earn excess or adequate risk-adjusted returns include Beijing, Shanghai, Tianjin, Perth, Sydney, Bangalore, Mumbai and Delhi for the office sector, and Mumbai, Chennai, Delhi, Auckland, Gold Coast, Singapore, Shanghai, Guangzhou and Chengdu for the retail segment. For the industrial sector, the top-two cities are Melbourne and Shanghai.

Comparing the forecasted total returns with the risk-adjusted expected rates of return, DTZ found that 84% of Asia-Pacific markets are trading at or below fair value in 1Q 2010, up from 50% a year ago. Globally, 90% of the markets are at or below fair value, a sharp increase from 10% a year ago.

DTZ attributed the increase to continuing price corrections last year and the forecast for improving returns.

Eight Asia-Pacific office markets made the global top-25 office market list, with seven of the eight at or below fair value, except for Singapore, which is trading at above fair value. Globally, 13 of the top-25 office markets worldwide are currently trading below fair value and nine are trading at fair value.

"With so many markets offering good prospective returns, investors may well feel spoiled for choice in the coming year and the ‘class of 2010’ may prove to be an outstanding vintage for investment managers," said DTZ.

Meanwhile, global capital values are expected to increase by 4.1% per annum over the next two years with the UK leading, particularly in the office sector and Asia Pacific close behind. However, Asia Pacific and the US are forecasted to overtake the UK in five years, which will see the UK market facing lower rental growth and a slight outward yield movement.

DTZ's fair value analysis covers the retail, office and industrial sectors in 172 global cities, and focuses on prime assets over a five-year investment horizon and hold for the market overall.

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