ST : Asia-Pacific office markets 'offer value'

Aug 20, 2010

Asia-Pacific office markets 'offer value'

Index sees commercial real estate in region promising better returns than that in Europe

By Esther Teo

A NEWLY launched global property index covering commercial real estate sees Asia-Pacific markets as more attractive than those in Europe but less so than that in the United States.

The Fair Value Index, as it is called, is compiled by property consultancy DTZ and offers investors an insight into the relative attractiveness of global markets over a five-year investment period.

The Asia-Pacific region scored 67 on the index in the second quarter, outstripping the global score of 62 and beating Europe's 49, but lagging behind the US' score of 89. A score above 50 indicates a hot market as expected returns exceed risk-adjusted required returns. Anything below 50 means a market is cold.

Mr David Green-Morgan, DTZ's head of Asia-Pacific research, said that Hong Kong, Singapore and Tokyo offer some of the most attractive opportunities across office, retail and industrial properties.

'Hong Kong and Singapore, two traditionally volatile markets, are set to record strong rental growth, particularly in the office sector, over the next five years as they rebound from sharp falls in rents in 2009,' he said. 'This will result in strong capital growth, boosting returns for investors and placing both markets in the hot category across the board.'

While the office sector in the Asia-Pacific region is leading the way with a score of 70, all three sectors - office, retail and industrial - offer opportunities to investors with scores above 50. The Asia-Pacific's retail sector is performing in line with the regional average at 67, while industrial stands at 61, DTZ said.

It added that the second quarter is in complete contrast to the same period a year ago when the Asia-Pacific all-property score was half of what it is now.

The economic recovery since then has improved liquidity and demand.

'Despite a pause in investment activity in China and Japan recently, the attractive pricing in many markets is seeing an increased number of buyers who are encouraged by occupational resilience and the resumption of rental and capital value growth,' DTZ said.

Mainland China continues to offer good value, led by office markets in Shanghai, Beijing and Chengdu. But office space in Guangzhou and Shenzhen and retail space in Shanghai are overpriced, according to the index.

Shanghai saw a number of retail construction projects in the lead-up to this year's World Expo. While they will sustain the sector this year, the outlook for investor returns over the medium term is expected to be subdued, DTZ said.

Meanwhile, a CBRE report yesterday said that more than half of the office rental markets in the Asia-Pacific region have either stabilised or started growing during the second quarter. Dr Raymond Torto, CBRE's global chief economist, said the region was the driving force behind the sector's global recovery, with over half of the markets either at the bottom of the rental cycle or in growth mode.

'Hong Kong, Shanghai and Beijing led the region's markets due to a push for office space from the financial sector in central business locations... Singapore, Bangalore and Mumbai followed closely as employment levels improved and prime rents and incentives remained stable.'

esthert@sph.com.sg