NOTWITHSTANDING a "longer winter" in Asia-Pacific real estate, there are still tactical themes for real estate investors given the longer-term fundamentals of the region.
Directors of UBS Asset Management shared in a briefing on Monday that the Australia and Japan markets are looking more compelling relative to Singapore, Hong Kong and China.
UBS Asset Management director of research and strategy for Asia-Pacific Toh Shaowei noted that while there is a "longer winter" in the Asia-Pacific, there are supportive macro-economic themes such as the easing monetary conditions.
"There is greater tactical value in real estate investing in Australia and Japan relative to Singapore, Hong Kong and China," he said.
His comments came as Asia-Pacific commercial real estate transaction volumes (excluding land sales) fell 12 per cent last year, reflecting the impact of elevated financial market volatility, regional growth concerns and tighter financing conditions for risk assets.
In Australia, the Sydney office sector is slated to receive a shot in the arm from the upcoming metro network, which will be constructed from 2017 to 2024.
As some buildings in the CBD make way for the metro over the next few years, the pull-back in office stock may drive rents upwards. "On the demand side, we have seen leasing enquiries from the finance, tech and media sectors in Sydney," Mr Toh said.
In Japan, the negative interest rates will be a "short-term sugar-rush to real estate investing", he added.
He believes the Tokyo office market will outperform on the back of very strong rental growth as Japanese corporates are sitting on a huge pile of cash and overseas profits being repatriated are benefiting from the exchange rates.
Mr Toh also expects Japan's tourism boom to benefit retail space and still sees some headroom for Tokyo's residential market amid a growing resident population. Close to 45 per cent of households in Japan do not own their homes, hence presenting opportunities for rentals and residential sales.
Across Asia, Mr Toh believes that favourable demographics and GDP growth bode well for the retail and logistics sectors. Real estate investments, however, will increasingly need to price in heightened geopolitical tensions in the region.
Graham Mackie, UBS Asset Management head of global real estate for the Asia-Pacific, said the bank has been seeing continued broad-based interest among investors for real estate, particularly Asian investors looking to invest in Europe and the US.
Chinese investors are still keen on overseas markets, including hospitality assets. London has been a favourite for Asian investors until the recent "hiatus" pending UK's "Brexit" referendum.
Even in China, where there is oversupply across all real estate segments, offices in Beijing and Shanghai are expected to continue to do well amid tight vacancies, while the logistics sector is a good proxy for the consumption theme, Mr Toh said.
In Singapore, however, conditions across real estate segments will remain challenging, he added.
But thanks to its safe-haven status, the total inbound capital into Singapore real estate last year surged 157 per cent to US$3.4 billion in 2015 even as outbound capital from Singapore into overseas real estate leapt 49 per cent to US$28.7 billion, data from Real Capital Analytics shows.
This article was first published on April 5, 2016.
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