DTZ's latest quarterly fair-value index, assessing the relative value of commercial properties in 84 cities around the world, said the Asia-Pacific region's commercial property markets offer attractive returns to investors, based on an overall score of 67 on the index in the second quarter. That is higher than Europe's score of 49, but is behind the United States with 89.
The index assesses the potential investment returns of office, retail and industrial markets across the cities in the next five years.
In the first quarter of 2009, 35 out of 49 markets in the Asia-Pacific were considered to be priced above fair value. But in the second quarter of this year, only nine markets were regarded as overpriced, compared with 26 that were underpriced. The index showed the investment market in the Asia-Pacific region had improved significantly in the past 18 months.
The firm said the improved outlook for investors has been built on the recovery in economic growth across the region, improved liquidity and demand for occupancy.
There has been a pause in investment activity on the mainland and in Japan recently. However, the firm said attractive pricing in many markets is seeing buyers increase due to resilience in occupancy and the resumption of rental growth.
In the Asia-Pacific area, Hong Kong and Singapore are currently offering the most attractive opportunities to investors in the office, retail and industrial sectors.
The firm expects the two cities will record strong rental growth, particularly in the office sector, over the next five years as markets rebound from sharp falls in rents in 2008 and 2009. The rebound in rents will lead to strong capital growth and offer a higher return for investors. Demand for office space in the Asia-Pacific region picked up in the second quarter of this year as companies revived long-delayed expansion and relocation plans. The aggregate net absorption was about 1.5 million square metres, almost five times the quantity recorded a year ago.
DTZ said it believed average prime rents in the region will rise 4.8% this year after falling by 22% in 2009. As the recovery speeds up, the rental market will return to a trend of 6 to 8% growth a year. The firm expects office rents in Hong Kong to rise at an annual rate of 12.5% between 2010 and 2014.
The retail market is very much more stable than the other two sectors. Retail rents in the region fell by only 1.8%, but office and industrial rents fell by 22% and 7.5% respectively.
The firm expects Beijing will offer attractive returns, while investors are currently able to purchase retail properties at higher yields than in other major markets within the region. But the yields in Shanghai are much lower and the outlook for returns is more subdued in the medium term.
The industrial sector in the Asia-Pacific area is expected to benefit from rising intra- and inter-regional trade as the economic recovery gathers momentum. — South China Morning Post