DTZ Asia Pacific Fair Value Index Q4 2010

23 February, 2011

  • Asia Pacific all-property DTZ Fair Value Index™ score of 57 reveals a decrease in investment opportunities compared to Q3 2010
  • Asia Pacific still offers more opportunities compared with other regions globally, with the Fair Value Index global score standing at 53
  • China and India present many HOT opportunities supported by forecast consumer spending growth of more than 8% per annum over next five years
  • Australian markets less attractive in Q4 driven by tightening yields
  • Hong Kong and Taipei COLD as office yields reach record low

Asia Pacific property markets now offer slightly less attractive opportunities to investors than they did previously, with the latest all-property DTZ Fair Value Index™ (FVI) Q4 2010 for Asia Pacific standing at 57, compared to 65 in Q3 2010. However, the DTZ Fair Value Index™ shows that, notwithstanding the downgrade in the Q4 2010 scores, Asia Pacific remains attractive globally, boosted by strong economic growth projections and consequently a positive rental outlook. During the fourth quarter, the global Fair Value Index™ decreased from 63 in Q3 to 53 highlighting an overall trend towards lower expected returns over the next 5 years as yields tighten.

In Asia Pacific, the Q4 2010 FVI reveals a significant shift between investment prospects in the maturing markets and those in developed markets. The Indian retail markets of Chennai and Mumbai have been upgraded to HOT this quarter, driven by a significant upgrade in rental growth expectations of over 6% pa in the next five years. In contrast, five Australian markets are downgraded from HOT to WARM, including Sydney and Brisbane offices and Melbourne industrial prompted by falling yields lowering expected returns in the future. Australian markets have also been impacted by an increase in the government bond yield raising the risk-free rate. Hong Kong and Taipei offices remain COLD as continued strong investor interest in these markets has pushed yields to record lows of 2.8% and 3.0% respectively.

David Green-Morgan, Head of Asia Pacific Research at DTZ comments: “Investors have responded to the attractive pricing in the region and as a consequence yields have compressed in several core markets. The strongest investment returns are therefore to be gained in some of the region’s emerging markets, for example in China and India where growth is forecast to be 9.2% and 8.2% respectively, and consumer spending is predicted to rise sharply as these markets continue to mature.”

The fall in the Asia Pacific score for Q4 2010 was the result of 16 changes in market classifications with 11 moving from HOT to WARM and one from WARM to COLD. This outweighed four market upgrades from WARM to HOT (see Fig 5).

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With a score of 60, the office sector continues to offer the most attractive investment prospects with the highest number of HOT markets – this is despite a fall from a score of 70 in Q3 2010. The outlook for this sector remains positive with companies throughout the region expanding their workforces and taking advantage of relocation opportunities. On average, prime office rents are forecast to increase by 6.2% in 2011. Total returns over the period 2011-15 are forecast to be highest in Bengaluru and Chennai which will benefit from both rental growth and yield compression. In contrast, in the developed markets of Hong Kong and Seoul, capital value appreciation is forecast to be minimal as rises in rents will be largely off-set by rises in yields in the medium term.

The industrial sector has also seen a reduction in its score to 50 in Q4 2010 from 65 in the previous quarter, following an increase in pricing in the Australian markets. Investment attractiveness in the retail sector remains broadly unchanged at 55 this quarter compared to 58 in Q3.

Tony McGough, Global Head of Forecasting & Strategy Research at DTZ, said: “The rapid growth witnessed in Asia Pacific during 2010 is expected to slow during 2011 as the stimulus policies implemented to counter the global financial crisis fades and governments’ implement measures to curb rising inflation. The region is still expected to outperform with the strongest growth forecast in the emerging markets of China and India. This will reveal itself in increased rents, only partly mitigated by strong development pipeline in certain markets. Consequently the region remains an attractive investment opportunity as indicated by the DTZ Fair Value Index™.”

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