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Investments in commercial real estate logical strategy as inflation looms in Asia, says Cushman & Wakefield

KUALA LUMPUR: The latest Economic Pulse report from Cushman & Wakefield shows that inflation is a likely scenario for Asia excluding Japan in the medium- to long-term future.

Hence, the international real estate services firm suggests investing in selected Asian real estate asset markets as a logical strategy under present circumstances.

“We remain optimistic about commercial real estate prices in most of Asia based on solid growth potential from large populations of a relatively young workforce and low levels of debt with plenty of savings,” said the New-York based firm in its October report.

“The one country that does not share these characteristics is Japan, which has high levels of public debt and a shrinking workforce due to its ageing demographics,” it said. “On that basis, further long-term weakness can be expected in the Japan real estate markets.”

It attributed inflationary pressures in Asia to its internal and external government policies that affect Asia via linked policy rates and exchange rates, saying low interest rates and loose monetary policies may initially aid recovery from the global recession, inflation is however, now an increasing worry.

It also said that while it was an unconventional idea that relatively high inflation rates could encourage economic development, inflation at moderate levels could encourage the investment of savings, thus preventing a build-up of global imbalances.

“What would appear significant for real estate market development and stability is not necessarily a low inflation rate, but a stable yield relationship between current rental streams and future rental streams,” said the report.

However, Cushman & Wakefield said Asia is well on its way to recovery, with all major economies on expansion paths.

“In all real estate markets, there will be points where supply will temporarily exceed demand, and Grade-A office space in Singapore would be one area to highlight,” it said.

“On the upside, the rate of demand in Asia is expected to pick up given it has money to spend and is not labouring under debt.”

According to its in-house research, it was shown that Ho Chi Minh City in Vietnam attracted one of the highest yields on office spaces with an average of 11% to 13% at US$48 (RM163.2) psf annually. Mumbai also saw an 11% yield at US$ 75 psf annually, while Jakarta saw 10% yield at US$21 psf a year.

Rental for office space was most expensive in Hong Kong at US$132 psf annually, followed by Mumbai at US$75 and the National Capital Region (NCR) in India at US$64.

Rentals for high-street spaces and shopping centres in India, especially in the NCR and Mumbai were the most expensive in Asia, both providing yields of 12% annually.

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