Melbourne, 13 March 2013 – Whilst concerns remain over the Eurozone debt crisis and the strength of the US economic recovery, real estate markets in Asia Pacific should start to benefit from an improving outlook for the global economy according to CBRE Global Research and Consulting.
Speaking at CBRE’s Market Outlook breakfast in Melbourne, the firm’s Head of Asia Pacific Research Dr Nick Axford said that occupiers had been more cautious over the past twelve months.
“Uncertainty over events elsewhere in the world made occupiers nervous about business prospects and reluctant to make capital commitments. This has slowed employment growth and demand for space, which has impacted ion rental growth in many markets.”
However, with the Chinese economy seeming to have avoided a hard landing and improving sentiment over the survival of the Euro, Dr Axford believes that Asia Pacific is well placed to benefit first from any upturn in the global outlook.
Looking at the investment market, Dr Axford noted that investors continue to target the real estate sector. Investment activity across Asia Pacific has continued to rise, with Australia just one of the markets that has seen increased levels of demand.
In terms of cross border investment flows, Dr Axford said that investors based outside Asia Pacific had generally been selling more property in the region than they had been buying, while Asia Pacific investors have generally been increasing their cross-border purchases.
“There is a clear distinction between Asia Pacific as a whole, and the Pacific region, where we have seen a steady rise in investment from outside the region – and a significant uptick over the past six to nine months.
“Over the year to December 2012, Australia was the most active investment market in Asia Pacific, and was the most popular port of call for investors outside the region.”
“Despite the relatively high cost of finance and the perceived currency risk, Australia remains attractive to investors – largely because it is a mature, transparent, liquid real estate market where pricing looks attractive relative to the very low yields prevailing elsewhere in the world.
Looking specifically at the Australian market, CBRE’s Head of Research for Australia Stephen McNabb said foreign interest was stronger than pre GFC levels underpinned by property yields which remained competitive on a global basis.
“However, a general lack of confidence in the growth outlook is holding back property market valuations,” Mr McNabb said.
“Traditionally, lower interest rates are a positive for transaction volume and valuations however sub trend economic growth combined with subdued levels of business confidence have held back growth assumptions and, as a result, valuations in Australia.”
The Australian economy - one of the drivers of the commercial property market - is expected to slow this year, however the underlying growth in the economy has been below trend for some time (if you strip out the contribution from mining investment).
“Drilling down to Victoria, a return to historical norms for economic growth is expected to continue after moving above the national average since the GFC,” Mr McNabb said.
Mr McNabb added that industrial was a category in which yields had started to re-rate for higher growth above long term averages amid increasing logistics demand.
“This may reflect a structural shift in the growth in internet retailing and its transformation of parts of the delivery chain which is driving demand in the industrial sector,” Mr McNabb said.
“While traditional retailers are gradually losing out to online sales, this is shifting activity between the retail and industrial sectors, with logistics the key driver. That said, at a national level we are also seeing a modest recovery in “traditional” retail volumes, albeit at a lower rate of growth than historically and this is also driving the flow of goods around markets.”
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