Sydney Ranks High in Commercial Real Estate Investment Sites for 2012
Sydney is ranked as the third most favourable market in the Asia Pacific region for commercial real estate investment next year, largely due to the resiliency of the Australian economy, according to "Emerging Trends in Real Estate® Asia Pacific 2012," a real estate forecast jointly published by the Urban Land Institute and PricewaterhouseCoopers.
Released in Sydney as part of a series of market forecast events being hosted by ULI and PwC throughout Asia, "Emerging Trends" provides an outlook on Asia-Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area. Covering 21 markets in the Asia-Pacific, it is based on the opinions of more than 360 internationally renowned real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.
The stability of Sydney, with some of the lowest risks found in the region, is reflected in both 2012 investment and development rankings. In addition to moving into third place from last year's sixth-place ranking for investment potential, the city's ranking for development prospects improved notably from the 2011 report, moving from 16th to ninth place.
(Sydney was one of only two markets to receive an improved individual rating score for development prospects.)
"Capital flows to the market have been positive and have come from many sources," notes the report.
"Foreign purchasers are seeing Australian property assets as a good, stable income return, which is favorable because they are not paying the high cost of debt." As a result, property acquisitions in Sydney are projected to remain steady in 2012.
For the Asia-Pacific as a whole, "Emerging Trends" points out that economic woes in the United States and Europe are weighing upon local economies across the Asia Pacific region as well as investor sentiment in Asia and Australian real estate markets.
"Asia has no shortage of investment capital, and until the middle of 2011 there was more concern over inflationary pressures than lack of demand," said ULI Trustee and ULI South Asia Chairman Simon Treacy.
"Suddenly, however, the prospect of a global relapse into recession is creating mounting unease. There will be ongoing and significant uncertainty in the global and regional economies and real estate markets over the coming 12 months. Is this a crisis or opportunity? It's both. Asia has entered the twilight zone, as there is still much to play out globally, given the debt and political issues in the U.S. and Europe, and the soft landing and credit crunch in China, all of which is reducing volume and pricing in the real estate market. It's certainly time to reduce risk, focusing on cash flow as the report suggests."
"The Australian property market continues to perform well," PwC Real Estate Leader James Dunning said. ''Investors are drawn to the Australian economy's overall resilience, high transparency levels and its exposure to China. Sydney is now one of the lowest-risk markets of anywhere in the Asia-Pacific region. It's now considered the third most attractive investment destination and ninth most popular development location. Melbourne is also one of the region's most important markets despite its construction levels cooling over the past year. For both cities, prospects over the next year are optimistic but cautious with a stable outlook."
Respondents were slightly less positive about the outlook for Asia-Pacific countries than a year ago, and their tempered enthusiasm was apparent in the cities' ratings. Only three markets - Bangkok, Manila and Osaka -- received an improved individual rating score from last year, and only Sydney and Jakarta received an improved development rating score.
The Urban Land Institute (www.uli.org) is a global non-profit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the Institute has nearly 30,000 members representing all aspects of land use and development disciplines.
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In addition to Sydney, other investment markets listed as the top choices for 2012:
Singapore. Claiming the top spot for a second consecutive year, Singapore continues to become a truly global city with a burgeoning asset and wealth management sector. In turn, Singapore continues to experience strong immigration and growth in tourism. But respondents say the market may have peaked. They suggest a large pipeline of Grade A office buildings and lower growth rates in rents may hold down investor returns. Over half of the survey respondents recommended 'hold' in all sectors, when asked their opinion on whether 2012 would be an optimal year in which to 'buy, hold or sell' properties.
Shanghai is ranked second for investment potential for the second consecutive year The Chinese city with the second largest gross domestic product continues to grow and attract institutional capital. Office space remains the key focus because of high demand and short supply, with an equal number of respondents choosing 'buy' and 'hold' in the office market. Retail growth is robust because of high domestic consumption, fueled in part by tourism, and over half of the respondents chose 'buy' for the retail sector.
Chongqing, included in "Emerging Trends" for the first time this year, is ranked fourth for investment prospects. One of the fastest-growing cities in China, Chongqing is home to some of China's largest automobile and steel corporations, among other industries. With rising labor costs in the nation's tier-one cities, second-tier cities such as Chongqing are seeing the benefit, boosting retail opportunities. Similar to Shanghai, over half the respondents gave a 'buy' recommendation for retail. Office stock is expected to increase dramatically over the next five years, far beyond the market's absorption capability.
Beijing. Respondents reported being bullish on Beijing, albeit conscious of the ongoing economic slowdown or "soft landing." The commercial leasing market is strong, with a constant supply of new buildings being met with consistent demand and growing rents. The area is cultivating new, large start-ups, which, together with an abundant supply of capital, will support further construction. Recommendations for the office and hotel sectors focus on 'hold', and on both 'buy' and 'hold' for the retail and industrial sectors.
China remains the largest emerging economy although economic performance for 2012 is expected to slow and moderate over the next five years. With three of the five top cities for investment, China will be an important destination for investors, but the biggest question for foreign investors is whether they can get capital into the country given the central government's fear over asset bubbles appearing in the real estate sector, respondents said.
India's economy continues to produce the second-fastest growing gross domestic product in the Asia Pacific region, just behind China, but developers face great difficulty raising capital through the nation's banking system. Within the country, investment prospects are brightest for Bangalore, but respondents noted concern about the economy in general. Rankings plummeted for New Delhi and Mumbai, both affected by inflation concerns.
Japan, which is still recovering from the March, 2011, earthquake and tsunami, shows the slowest growth in the Asia Pacific region. While reconstruction should provide some boost to income and employment, the economy still must deal with stagnant household spending, poor demographics and excess government debt. Tokyo's investment ranking fell five slots this year to 17th. This was the second consecutive year it registered a significant decline.
Across the Asia-Pacific region, the industrial/distribution sector is top-rated, followed closely by residential real estate, both for-sale and rental. Office and retail sectors are in the middle of the range, while the hotel sector is least favored for investment.