Knight Frank APAC Managing Director Kevin Coppel says Asia-Pacific’s property markets faced challenging market conditions in 2019, as demand contracted in response to the overhang of the US-China trade tensions and local socio-political issues.
According to Knight Frank APAC Managing Director Kevin Coppel, the recent agreement penned between US and China and a Conservative Party win in the UK may help improve investor confidence going into 2020.
“While there is still a long way to go, the limited agreement recently struck between Washington and Beijing should at least restrain further escalation and provide a much-needed boost to market sentiment. Similarly, a Conservative majority in the UK elections is likely to draw Asia-Pacific investors back to the UK as the uncertainty surrounding the passage of Brexit diminishes. On the occupier side, businesses are increasingly looking for flexible workplace solutions to remain responsive to market shifts. The growth of e-commerce will also create more opportunities in the industrial sector for emerging markets like Thailand, Malaysia and India, as businesses are competing on speed-to-market, and manufacturers look at alternative options particularly in Southeast Asian countries,” says Coppel.
Commercial property outlook
In 2020, Grade-A office rents across the region are expected to fall between 0 to -3%, down from the 0.6% rise in the first nine months of 2019, as occupier demand continues to soften. Overall cap rates for Asia-Pacific are expected to remain stable as diminished growth prospects within the commercial real estate sectors is balanced out by some monetary easing.
Australia continues to provide investors with attractive investment propositions, given its higher yields relative to other developed markets. In 2020, Australian commercial and industrial real estate is expected to see another year of double-digit total returns, with capital growth accelerating in response to lower interest rates.
“Following several years of strong growth, the global economy is now witnessing a synchronised slowdown. This, along with a raised risk profile, is prompting Asian investors to seek out secondary markets – for example, Brisbane, Perth, Manila – and to consider opportunities for long-term income, including from alternative asset classes,” says Coppel.
Prime residential outlook
The Knight Frank Prime Global Cities Index, which tracks the movement in luxury residential prices across 45 cities, saw a 1.1% average annual price growth, down from 3.4% in 2018, with secondary cities in Asia – including Taipei, Manila, Guangzhou and Delhi – creeping into the top 10.
“Singapore’s prime market remains subdued as buyers adjust to the latest round of cooling measures, yet despite this, a few record sales prices have been achieved so far in 2019, with an expected 3% price growth in the prime market in 2020,” says Coppel.
Manila’s prime residential market continues to sprint ahead, with prices rising 6.5% year-on-year, compared to a 10.9% rise witnessed last year, as strong demand from investors and BPO employees fuels growth.
Markets and assets to watch in 2020
Australian Commercial Property: Office rents are projected to rise in Sydney given chronic undersupply, while Melbourne continues to benefit from strong occupier demand. For the industrial sectors, the rise of e-commerce will support robust demand for prime industrial space.
Bengaluru Grade-A Office: While more supply is expected to enter the market, demand will keep pace with positive net absorption as the IT sector continues to expand.
Seoul Grade-A Office: Seoul’s office sector remains an attractive destination for capital given its relatively attractive yields compared to other developed office markets in the region and the availability of core trophy assets.
Singapore Prime Residential: Singapore’s prime residential will continue to be viewed as a safe-haven asset class in 2020; while further market volatility abroad is likely to support price and sales volume growth.
Manila Prime Residential: Robust demand has energised the market in 2019 with fast absorption encouraging developers to create more product. With a healthy economy and several projects in the pipeline, the prime residential market is expected to do well next year.
Student housing: In a lower-for-longer environment, investors have been looking into alternative asset classes, given their relatively attractive return potential and counter-cyclical risk diversification benefits. In particular, student housing stands to benefit from the growth in student numbers both in Asia-Pacific and globally.
(Ed. To download the full Knight Frank Asia Pacific Property Outlook Report, click here.)