Improving economic conditions in the Asia Pacific region and general growth across developed Asia is set to boost real estate investment, according to a new report.
The strongest rental growth prospects are expected in Australia and Japan this year, says the latest Asia Pacific outlook report from property fund manager M&G Real Estate.
The report explains that solid returns over the next three years across all three major commercial property sectors are expected, with rents set to outpace inflation, although on a sector basis, office rents will outperform retail and logistics over the next 12 months.
Chinese companies seeing moderating demand at home are expanding into Hong Kong, helping to drive its office market, while buildings in Tokyo with floor plates greater than 2,000 square meters have seen vacancy rates fall below 4% for the first time since 2007, supporting the prediction for future rental growth.
Other headline predictions reveal that Australia and Japan’s retail sectors are reaping the benefits of rising domestic spending. High street shops and department stores in Australia are performing particularly well, thanks to the growing popularity of city centre living.
The report points out that this is subsequently creating opportunities for investors to increase the appeal of their existing assets in central Sydney and Melbourne, by adding or enhancing retail assets.
In the logistics sector, M&G Real Estate says that Korea, Chinese tier two cities and ASEAN countries are beginning to open up to core investors, offering strong advantages to early entrants.
It adds that the relative ease of creating new logistics space has resulted in more new development than seen in other major sectors, but while it is expected that the majority of future supply will be met by rising demand, it could limit prospects for near term growth.
Overall, investment activity levels for Asia Pacific remain strong with annual transaction volumes running at around US$180 billion and Cuong Nguyen, head of Asia Pacific research at the firm said that it expects inter-regional investment to continue.
He explained that foreign investors are attracted by the maturity and liquidity of Asian real estate, as well as the diversification benefits and the breadth of opportunities available.
‘European investors are particularly interested in generating strong, sustainable income streams in Asia’s growing universe of prime real estate and US investors are increasingly considering core opportunities as the risk premium they attach to the region gradually reduces,’ he added.