COUNTRIES in the Asia Pacific region must grab hold of opportunities and overcome several challenges to fully realise the promises of the “Asian Centuryâ€, according to Jones Lang LaSalle’s head of research David Rees.
Speaking at the Australian Property Institute’s Pan Pacific Congress last week in Melbourne, Rees said that despite positive signs there were a number of challenges the region faced, namely demography, information technology and, importantly, transparency.
“If you want to produce a list of positives for the region, you can produce a very long list: robust growth; high savings rates; rapid urbanisation; rising education; lower taxes – and that’s just for starters.
“It’s easy to project the growth and the size of the real estate market, but unless you can generate, provide and attract the capital, then growth becomes a lot more problematic than simply doing linear extrapolation.
“There’s probably nothing you can do in the Asia Pacific region that represents an easier win – a bigger win – than to improve the transparency across the region,”
He said transparency mattered because it implied investment flows into the region, tighter yields – “a free kick in terms of capital growth” – and strong economic growth overall.
“(It’s) an important driver of capital flows, particularly in these troubled times when investors were very cautious and very conservative.”
“The importance…is given added weight by the fact that post-GFC, there’s been a marked shift of portfolios towards real estate.
“The question really for the Asia Pacific is what extent we’re able to capture these portfolio switches,”
According to the Jones Lang LaSalle ‘s Transparency Index, the only “Very transparent” countries in the region as of 2012 were Australia and New Zealand, with just Hong Kong, Singapore, Malaysia and Japan further down the list considered “Transparent”.
“Perhaps a more telling comparison is…to look at the flows between regions. Over the last 18 months, the Americas have absorbed $51.7 billion, in the Euro $59.1 billion, and the Asia Pacific region $7.9 billion. That’s 6.7% of the total flows. So clearly, in terms of its stability to attract capital, the Asia Pacific region may be attractive for all kinds of reasons but they’re not successfully attracting our benchmark or our fair share of capital.
“Simply improving the quality and provision of data would be a big plus for global investors looking to invest in the region. If you know roughly what office rents were, what vacancy rates were, what yields were, it would be much easier to invest in these markets with some degree of confidence,”
Rees said another challenge would come from the demographics of countries’ populations across the regions, with the three drivers that seemed to explain office rents across the region quite well being market size, vacancy rates and median age.
“As populations age, the peak rate of growth and demand for services may be approaching in some markets. At least some of the Asian markets you could argue are approaching the point of inflection,” he added. “For some Asia Pacific markets, the demographic tailwinds of the past 20 years may turn out to be headwinds over the next few decades.”
He said it was important for real estate investors to distinguish between the pace of growth, and the rate of change of that growth.
“I think across most Asia Pacific markets the pace of growth remains positive, but the rate of change may well be slowing down – and it’s the second derivative that often drives investment performance.
“But the AP region does have a great deal of diversity, and that diversity opens up significant opportunities for real estate investors, whether it’s in residential, student housing – which is a rapidly growing asset class in the region – (or) aged care, as well as in the core sectors of office, industrial and retail,” he added.
The development and management of information technology was also set to define real estate markets in the Asia Pacific, particularly the retail and industrial sectors.
“In the case of Australia, as in the USA and Europe, online shopping and related activities is having a massive impact on the retail sector. It’s likely to drive, I think, changes in tenancy mix, contractual arrangements, what you look for in an anchor tenant,” Rees said.
“In Australia, as in the US and most other advanced economies, the retail infrastructure that we have predates the online shopping revolution, the wireless revolution and the latest wave of IT. But in many Asia Pacific countries, there’s little legacy overcapacity because there’s very limited capacity to start with. This is because the online shopping has arrived before the era of mass construction and mass investment and infrastructure.
“I think the Asia Pacific region is in a particularly strong reason to capitalise on these new trends…and they certainly have the flexibility to invest in the sort of real estate and infrastructure that you need for an efficient IT-based economy.” Rees concluded.
Property Review
