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What is the outlook of Asia Pacific commercial property?

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What does 2016 have in store for real estate in Asia Pacific? With high prime occupancy costs across Hong Kong and China, the region is expected to bring strong valuations that reflect the growing economy.

However, outside of global property powerhouse Hong Kong, cities across the region are emerging as key contenders for property investment. Keeping up with these trends is key to creating an accurate property development plan which, in turn, can help real-estate agents arrive at a reliable investment appraisal for clients. 

High prime occupancy costs in Asia

"We [CBRE] expect that most advanced economies will keep growing in 2016 and 2017."

Recent CBRE research, the Global Prime Occupancy Costs survey, indicated a positive trend for key Asian markets. Prime occupancy costs consist of local taxes, rent and service charges. CBRE also stated that internationally, these rates increased by 2.4 per cent, indicating that property feasibility is improving.

"The global services sector has grown steadily for four years now, which helps to explain the general uplift in office rents and costs we are seeing worldwide," explained CBRE Global Chief Economist Richard Barkham.

"Despite the fact that some markets have been hit by the China, oil and commodities slowdowns, we expect that most advanced economies will keep growing in 2016 and 2017, which combined with limited availability and relatively muted development levels, will result in moderate 2 percent to 3 percent cost increases."

According to CBRE, London once again took the top spot for the most expensive office market globally. However, Hong Kong and Beijing were placed in four of the five highest-priced spots in the rankings. The top five markets are as follows:

  • London's West End: US$273 per square feet per year
  • Central Hong Kong: US$269 per square feet per year
  • Beijing's Finance Street: US$191 per square feet per year
  • Beijing's Central Business District CBD: US$183 per square feet per year.
  • Hong Kong's West Kowloon: US$162 per square feet per year

Out of the 126 office markets analysed by CBRE, there were 50 highlighted as the most expensive. CBRE noted that almost half (20) of these markets were in the Asia Pacific region.

Central Hong Kong was a close second to London's West End, being the only other global market to exceed US$200 per square feet for prime occupancy costs.

Hong Kong

Knight Franks 2016 Global Cities report indicated that Hong Kong could see increased decentralisation as high rents and office space shortage drive investors out of the CBD.

According to the organisation, many firms have relocated to Kowloon East in order to reduce costs, resulting in the area becoming the second largest business hub in Hong Kong.

However, Knight Frank assert that any competition between these markets will be a long term trend. In the short term, the company expect to see markets such as Hong Kong's Kowloon East complementing Central Hong Kong.Kowloon East complementing Central Hong Kong.

"The dilemma faced by today's global real estate investor is whether to buy into the slower growth established cities in the high-income countries, or the faster growing but riskier emerging markets," explained Knight Frank Chief Economist James Roberts in the report.

In light of this, investors are seeking property outside of the key global cities, looking to tech cities that emphasise innovation.

Have you considered 'New World Cities'?

"Real estate is a major factor in city momentum as it can enable productivity, creativity and entrepreneurship."

JLL reveal in its annual City Momentum Index (CMI) that innovation and livability are helping drive the property feasibility of key cities across the globe, including Asia. Moreover, JLL Global Research Director Jeremy Kelly explained that a strong property market can, in turn, boost innovation.

"Real estate is a major factor in city momentum as it can enable productivity, creativity and entrepreneurship while creating a sense of community for its citizens in a sustainable urban model," he said.

"Real estate no longer simply houses businesses - it attracts corporations and talent, and cities need to ensure their built environment provides the smart, productive commercial buildings that corporations, capital and talent now demand."

Within the top 20 ranking of the CMI were key Asia Pacific cities. India was represented at number four and 17 for Bangalore and Hyderabad, respectively. JLL noted that both of these cities are on track to improve infrastructure and foster a high-tech economy. China was also present, represented in the top 20 by Shanghai (6), Beijing (9), Shenzhen (12) and Nanjing (15).

JLL attribute much of this growth to the emergence of 'new world cities' challenging the established top markets.

According to a late 2015 JLL report, Globalisation and Competition: The New World of Cities, certain areas are using innovation to tackle the challenges of modern real estate and create truly livable cities.

While these cities vary in their geographical locations, they share similar characteristics. They typically:

  • Are often tech cities or specialise in a global market
  • Tend to be medium sized
  • Are habitable and sustainable with innovative infrastructure

The report points out Brisbane and Melbourne as examples of this emerging trend. These mid-sized Australian cities are able to take advantage of growing interest in their property markets to attract the right employees and companies, and as such, there is growing global real estate investment.

JLL Global Research Programmes Director Rosemary Feenan explained the significance of considering these cities in a property development plan.

"This new economic and technological order offers cities the opportunity for re-invention, for the creation of a new economic and social dynamism, and improved quality of life," she said.

"The result is that cities are redefining urban strategies and taking clear positions on the policies required to achieve their visions and style objectives. For real estate investors who are assessing and choosing cities to target, the move away from city hierarchies to these new clusters presents an opportunity to more readily identify very real future opportunities."

Taking into account these trends can help reach an accurate investment appraisal. Moreover, using property valuation software can ensure any changes are made in real-time, a necessity in today's global economy.

Date Published: 15 Feb 2016
Category: General News

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