Investment Demand Still Strong Across Asia Pacific but Activity Set to Moderate
Hong Kong, February 17, 2016 – CBRE today published the 2016 APAC Real Estate Markets Outlook report in Hong Kong. The report highlights the key trends for the year ahead in the office, retail, industrial and investment real estate sectors across the Asia Pacific region.
CBRE forecasts that due to Asia Pacific’s steady economic growth—which
will continue to outpace the rest of the world in 2016—investment activity in
the region will remain solid, although activity will be limited by asset
pricing and availability.
“The region’s investment market will continue to see strong
demand from real estate commingled funds and institutional investors.
Institutional investors will continue to invest in Asia Pacific to increase
their exposure to real estate for strategic diversification,” said Dr Henry Chin, Head of Research, CBRE Asia
Pacific. “That said, Asia Pacific will enter a period of slower growth in
the commercial real estate market with activity likely to moderate over the
course of the year as it becomes more challenging to source investable stock
able to meet investors’ target returns. Interest rates will remain low in 2016
so yields are largely to remain stable across Asia Pacific.”
Across Asia Pacific, and particularly in Hong Kong, the
economic slowdown in China—as well as the US interest rate hike and currency
volatility—are some of the key concerns for investors, given the scale of its
impact across the whole region.
“In view of
market concerns, we believe China will experience a further slowdown in
economic growth in 2016, which will have an impact on Hong Kong’s retail and
logistics momentum,” said Marcos Chan,
Head of Research, CBRE Hong Kong, Macau and Taiwan. “We also believe a
substantial US interest rate hike is unlikely for this year. Under such conditions,
Hong Kong will see softer demand for properties and a soft landing is expected
for the sales market.”
Other key findings:
Office
Companies retain an optimistic long-term outlook towards Asia Pacific—as it is still a key growth market for many international firms—however, they remain cautious in the short-term. Flight-to-value will increasingly replace flight-to-quality as the key driver for relocation and consolidation, particularly amongst MNCs.
Global banks will focus on restructuring their real estate
portfolios by downsizing, space utilization, offshoring, subleasing unused
space and moving supporting and back office functions to cheaper locations. For
other industries, more occupiers will be motivated to relocate to decentralized
locations due to cheaper rents, new supply and improvement to infrastructure. Hong
Kong will broadly follow these trends. Yet Hong Kong will continue to enjoy sustained
demand for leasing and acquiring prime office space from mainland Chinese companies and
financial services firms. Grade A office rents in Central are
expected to increase by 5-10% for 2016.
Retail
In 2016, many retailers will shift their strategic focus from expanding their store networks to rationalization; improving in-store profitability; and upgrading to better locations. Demand across the region will be led by F&B retailers, while affordable and niche luxury brands will also be active. The rise of online shopping will continue to force shopping malls to embrace retail-tainment and adjust their trade mix to include more experience-oriented retailers to retain foot traffic. Against the sluggish leasing demand and ample new supply, overall retail rents are forecast to experience a mild correction of below 1.0% in 2016.
Leasing activity in Hong Kong will remain sluggish. Major
luxury brands will continue to consolidate their store network, but Hong Kong will
maintain its role as one of the key retail markets in Asia. Vacancy in core
locations will increase as retailers gradually withdraw from core districts to
domestic-oriented shopping malls in suburban areas. Capital values for prime
street shops are expected to decline noticeably in order to align with the deep
rental correction.
Logistics
Occupier demand for logistics space is expected to remain solid in 2016. Despite the current challenges facing the export sector, the logistics market will continue to benefit from the rapid expansion of e-commerce as both traditional and Internet retailers increasingly go online to generate sales. All markets, especially Hong Kong, Japan, Singapore, South Korea, Taiwan and Australia, are expected to benefit from this structural change. Other key trends this year will include consolidation for better operations and the conversion of older facilities into high-end logistics properties such as cold storage and consolidation centers.
Trade activity will remain slow in Hong Kong, and the
likelihood of a noticeable rebound in leasing demand for logistics facilities
is low. The low vacancy environment,
however, will prevent industrial rents from falling. Industrial rents are
expected to remain relatively flat in Hong Kong in 2016.
Access all CBRE research reports at CBRE Global Research Gateway.
Disclaimer:
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
