By Andrew Batt:
Real estate investment house Pacific Star Group is predicting that the retail and office sectors in Bangkok will be at the forefront of driving interest in Asian real estate investment.
In its biannual Asian Property Outlook and Strategy report published today, the company said that despite the global economic gloom and deteriorating Chinese outlook, Asian real estate market will see on going investment interest, driven by the search for yield and diversification.
In the report, Pacific Star noted the key risk for real estate investments in Asia is the overall macro outlook. The global economy is in a state of inflection and the recovery for many markets depends on a macro recovery in 2013 and beyond. In Asia, growth prospects have also dimmed as China, its bellwether economy, sees a definite economic slowdown.
Amid the global uncertainties, the report pointed out that healthy domestic conditions and buoyant tourism growth underpin the favourable outlook for the Southeast Asian retail markets of Singapore, Kuala Lumpur and Bangkok.
In the office sector, Pacific Star favours Singapore which continues to hold its ground as an attractive business hub. Firm leasing demand from non-financial sectors is cushioning the softer demand from the financial sector.
In Bangkok, where rents have stayed firm, enquiries are rising amid the improving post-flood economic environment and a tight supply pipeline.
Pacific Star, however, refrained from classifying any residential markets in Tier1 1, as markets across Asia continue to face pressures from previous policy tightening measures. It said that greater opportunities are expected in mass housing as against the prime residential segment, due to favourable mortgage financing and declining interest rates that support genuine home buyers. Recent policies have centred on supporting genuine homebuyer demand while keeping a lid on speculative pressures.
Commenting on the report, Lam Chern Woon, Pacific Star’s Vice President of Research and Strategic Planning, said: “While we’re optimistic about continued interest in Asian real estate, we’re also at a juncture where any further deterioration in the macro outlook can drastically impact returns. Given this, it’s all about entering the market at the right time. So timing is key for investors. Nonetheless, Asia will continue to stand out because of its resilience supported by domestic demand and wider policy options, even in the face of muted prospects in the US and Europe.
“The retail sector is the bright spot in the region and demand here is driven by the large number of international retailers coming in to set up shop in markets like Singapore, Kuala Lumpur and Bangkok. These retailers are eager to establish a greater brand presence and to tap growing tourist arrivals as well.
“There are interesting investment opportunities in the Singapore and Bangkok office sectors with expansions coming from the non-financial sector, while the supply picture remains relatively healthy. Across Asia, the decentralisation movement could weigh on prime office demand although rising tenant upgrading should provide an important counterbalance.”
Several fundamentals augur well for the region: stronger inter-regional trade, greater financing by local banks as European banks retreat, consumer spending sustained by wage increases, more affluent households and increased tourism arrivals. Policy makers also have considerable leeway to employ counter-cyclical stimulus measures.
The report also highlighted potentially rich investment opportunities in the fringe economies of Myanmar, Vietnam and the Philippines given their strong fundamentals – a very large population base with youthful demographics, growth catalysts, wealth of natural resources and proximity to China and India.
As these economies restructure and attract foreign investments, real estate opportunities are most prevalent in the hospitality and retail sectors, which currently lack quality facilities. Malls need to be modernised, or built, and as these governments promote travel and conventions, new hospitality facilities will be needed, especially in popular tourism spots like Yangon (Myanmar), Manila and Cebu (Philippines), and Ho Chi Minh City, Hanoi and Da Nang in Vietnam.
Pacific Star manages prime office, residential and retail assets across Asia and has advised and managed real estate deals worth more than US$6 billion since its inception in 2001. It has made several notable investments including Shui On Land in China which owns the renowned Xintiandi in Shanghai; the iconic Pavilion in Kuala Lumpur; Wisma Atria, Ngee Ann City and Capital Square in Singapore; as well as the acquisition and divestment of a 50 percemt interest in Eureka Office Fund which had Singapore commercial properties Temasek Tower, The Adelphi and One George Street in its portfolio.
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