JLL : Asia Pacific’s property markets to weather turbulent period

Despite the uncertain political environment of 2016 being set to continue into 2017, occupier and investor demand will remain positive in Asia Pacific with optimism around the region’s long-term fundamentals, according to JLL’s Asia Pacific Property Digest (APPD) for Q4 2016.

The outlook for the region’s economy in 2017 is broadly in line with the previous year and growth is expected to hover around 5%. The JLL report revealed that while the geopolitical climate and path of US Fed Rate hikes did present risks for the outlook, growth could surprise on the upside as forecasts for many major economies have been revised up on the back of recently strong results. It confirmed that while Asia Pacific should remain the primary engine of global growth, there would be a mixed performance across the region.

Total real estate transaction volumes in Asia Pacific grew by 5% in 2016 and 21% y-o-y in Q4, with certain countries in the region driving investment activity. Real estate transaction volumes for Q4 2016 totalled US$15.5 billion in China, US$7.4 billion in South Korea and US$7.2 billion in Japan, as buyers aimed to close deals before the year-end.

Looking ahead in 2017, the regional outlook remains positive with buoyant investor and occupier activity. Dr Megan Walters, Head of Research, Asia Pacific at JLL said, “While the uncertain political environment of 2016 is set to continue into 2017, real estate assets continue to attract capital, preserve value and serve as a crucial part of a diversified global investment portfolio. Continued appetite for real estate is expected to see investment volumes hold up, with core markets such as Sydney, Tokyo and Singapore attracting interest. We expect stronger activity in Indian real estate, with investors likely to be interested in Southeast Asian countries such as Vietnam and the Philippines that are showing better prospects on rental growth.”

Michael Fenton, NSW Managing Director and Australian Head of Industrial at JLL, said it was an exciting time for Sydney’s commercial property markets. “Office leasing in the CBD has witnessed strong rental growth and vacancy is expected to trend down over 2017.

“In the retail sector, we saw strong investment activity, despite a decline in the fourth quarter of 2016, with leasing demand in prime regional and CBD shopping centres remaining firm. The strong NSW economy will be supportive of retail spending which will be positive for the sector, among other conditions, including the entrance of more international retailers.

“Meanwhile, performance in Sydney’s industrial sector was strong in 2016 and conditions are expected to remain firm this year. We saw prime yields compress in all precincts with the exception of the Outer Central West and Outer North West. South Sydney had the tightest prime yield range, with average prime yields at 5.75%. This is below the previous record low of 6.50% achieved in the fourth quarter of 2007, and evidences how strong the current market is. The withdrawal of space for alternative use will also remain a theme over 2017 in South Sydney.

“Development activity in 2017 is forecast to be the highest figure since 2008 for Sydney’s industrial markets. The construction of the Western Sydney Airport as well as arterial road upgrades in the Outer Western precincts will increase the attractiveness of the area for industrial occupiers,” Mr Fenton said.

He added that strong conditions were also present in Melbourne’s industrial markets. “Leasing activity picked up strongly in the fourth quarter after a subdued third quarter. Melbourne’s industrial markets should be supported by a number of major infrastructure projects that will complete over the next decade. At the same time, serviced industrial land is becoming limited and this will likely continue to place upward pressure on land values,” Mr Fenton said.

Source: JLL

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