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SINGAPORE: Commercial properties in Asia will continue to perform well in the second half of 2011, said Asia real estate investment house Pacific Star Group in its biannual Asia Property Outlook and Strategy report.
"Despite global market uncertainty, Asian real estate is supported by favourable economic fundamentals and positive consumer sentiment in most markets. Capital values have risen on the back of solid rental growth as regional economies continue their strong expansion," it noted.
Given the strong underlying fundamentals in the Asian real estate market, 70% of investors are looking to expand their property portfolio over the next 12 months, with 11.68% of investors surveyed expect higher market returns over the next 12 months.
It also believed the economic recovery in the region is moderating to a more sustainable rate which should provide steady support for Asian real estate.
Real estate investments in Asia moderated this year to reach US$25 billion (RM73.25 billion) in the second quarter. Investors exercised greater caution and held back investments as the debt crisis in Europe intensified.
"In spite of the devastating earthquake in Japan, there has not been any serious cancellation of deals. Rather, market players appear to be adopting a wait-and-see attitude in the light of ongoing difficulties in Asia's largest real estate market. As a result, expect volumes to slow in the short-term before picking up again towards the end of the year as uncertainty clears and investor confidence resumes," it added.
The group's top pick in the commercial sector is retail real estate. The key factors supporting retail properties is buoyant retail spending and rising tourism inflows to Asia. In addition, Southeast Asia is experiencing a tourism boom and is expecting to receive about 104 million international tourist, generating US$148.8 billion in tourist spending by 2021.The group's picks of the top three destinations in the region for retail property investment are Hong Kong, Singapore and Kuala Lumpur.
"Hong Kong is supported by tourist spending especially from outbound Mainland Chinese visitors. Singapore likewise is enjoying a surge in visitors attracted especially to its integrated resorts. Over in Malaysia, domestic factors are at play. Strong wage growth and positive retail sentiment have boosted retail spending and real estate fundamentals in Kuala Lumpur," explained Leslie Chua, group senior vice president and head of research and strategic planning.
After retail, the group favours office properties, as the region's rapid economic growth is fueling a steady upturn in the office sector. It noted that demand for office space in Asia has been driven mainly by corporate expansions, upgrading as well as relocations with financial, insurance, real estate and information technology tenants leading the way.
"We expect office rents to remain firm because of positive business confidence and encouraging pre-commitments for new developments. Companies are actively looking to hire new staff, particularly in Singapore and Greater China," Chua added.
Pacific Star's top destination for office property investment is Singapore as it continues to exhibit a strong services outlook, political stability, and ease of doing business. It also noted that office rents in Singapore are still about 30%-40% off the 2008 peak. Furthermore, strong hiring demand is expected to provide support for rental growth of around 20%-30% through 2013.
Buoyed by positive business sentiment and strong corporate hiring, aggregate net absorption of office space across Asian cities rose by 45% year-on-year to 1.3 million sq m (NLA) in 1Q11.
However, the group is cautious on the residential sector citing a disproportionate amount of policy risk and rising interest rates. Taking into consideration loan structures, incomes and home prices, the group expects home buyers in Seoul and Ho Chi Minh City to be the hardest hit in the region while Kuala Lumpur will be least affected as policy risk is relatively low and economic conditions are generally healthy.
The biannual Pacific Star Asia Property Outlook and Strategy report surveys Bangkok, Beijing, Ho Chi Minh City, Hong Kong, Kuala Lumpur, Seoul, Shanghai, Singapore and Tokyo. It rates the attractiveness of their office, retail and residential properties based on aggregate scores across key property drivers such as economic outlook, demographics, socio-political stability, ease of doing business, transparency, vacancies, financing environment and timing in rental cycles.
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