Asia Pacific DTZ Fair Value Index™

01 September, 2010

  • Asia Pacific commercial property markets are offering attractive returns to investors based on a score of 67 in the Fair Value Index™ in Q2 2010, well ahead of the global all-property Fair Value Index score of 62
  • Over half of the markets in Asia Pacific are categorised as HOT
  • Most mainland China markets continue to offer good value, but the Guangzhou and Shenzhen office, as well as Shanghai retail markets, are priced above fair value and therefore classified as COLD
  • In Australia, opportunities in offices and industrial markets are most attractive, while retail markets are also WARM
  • Delhi retail and Bengaluru office and retail markets are top ranked Indian markets
  • The core office markets of Hong Kong, Tokyo and Singapore are in the top five markets in Asia Pacific

Asia Pacific all-property Fair Value Index at 67 implies markets offer excellent value

The Asia Pacific all-property DTZ Fair Value Index™ stands at 67 for Q2 2010 (see Table 1). The Index offers investors insight into the relative attractiveness of current pricing in global commercial property markets. An Index score above 50 indicates there are more markets categorised as HOT (i.e. attractive to investors as expected returns exceed risk-adjusted required returns) than COLD (i.e. unattractive to investors as expected returns are below risk adjusted required returns). At 67, the current index score implies that commercial property markets in the Asia Pacific region are generally offering attractive returns to investors buying into the market now.

Office more attractive than retail and industrial

While the office sector in Asia Pacific is leading the way with a score of 70, all three sectors are currently offering opportunities to investors with scores above 50. The retail sector is performing in line with the regional average at 67, while industrial stands at 61.

More opportunities now than 12 months ago

The situation as at Q2 2010 is in complete contrast to a year ago when the Asia Pacific all-property score was half the current score, implying the investment landscape has improved considerably in the last 12 months. The improved outlook for investors has been built on a recovery in economic growth across the region, improved liquidity and occupational demand. Despite a pause in investment activity in China and Japan recently the attractive pricing in many markets is seeing an increased number of buyers who are encouraged by occupational resilience and the resumption of rental and capital value growth.

Asia Pacific markets attractive relative to other regions

The global all-property Fair Value Index score for Q2 2010 stands at 62, below the Asia Pacific score of 67. Asia Pacific (67) compares favourably internationally, and offers more attractive investor opportunities than in Europe (49), but remains behind the US (89).

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Tony McGough, Global Head of Forecasting & Strategy Research at DTZ, comments: “We have devised the DTZ Fair Value Index™ to help investors to allocate funds to commercial property, particularly in this highly uncertain market environment. The index quantifies the impact of macro-economic trends on the attractiveness of individual markets over a five year investment period – providing investors with our foresight.”

More HOT than COLD markets in Asia Pacific

Table 2 presents a breakdown of the number of HOT and COLD markets throughout Asia Pacific. Across the region there are a greater number of HOT markets. This is driven by strong forecast rental growth in many markets, coupled with attractive yields for investors purchasing at current pricing. The attractive investment conditions are broadly based, with the Australian, Chinese and Indian markets all offering many attractive opportunities.

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Most mainland China markets continue to offer good value

Mainland China markets continue to offer good value, led by office markets in Shanghai, Beijing and Chengdu. However office markets in Guangzhou and Shenzhen, as well as Shanghai retail, are overpriced. Shanghai has seen a number of new retail buildings constructed in the lead up to the Expo exhibition. While this will sustain the sector during 2010, the outlook for investor returns over the medium term is expected to be subdued.

Australian opportunities in offices and industrial markets most attractive

The opportunities across Australian markets are most attractive in office and industrial, with retail more evenly balanced. Melbourne, Sydney and Brisbane are the top ranked office markets in Australia. High yielding Australian industrial markets look attractive at current pricing, with the key distribution hub of Melbourne expected to be the strongest performer due to strong rental growth as trade flows continue to expand.

Delhi retail and Bengaluru office and retail markets lead the Indian markets

Five of the eight Indian property markets are categorised as HOT. After the Delhi retail market, the office and retail markets in Bengaluru are ranked second and third respectively. The rapidly growing IT and consulting hub of Bengaluru is India’s largest office market, and is expected to see strong rental growth over the next five years. Both local and Western firms have shown a preference for establishing operations in Bengaluru, leading to strong demand for office space. Investors are able to obtain property at attractive yields, and coupled with strong rental growth, the next five years look set to provide excellent returns.

Hong Kong, Tokyo and Singapore office markets in the top five markets in Asia Pacific

Among the rest of the Asia Pacific markets, some of the largest key office markets in the region including Hong Kong, Tokyo and Singapore show attractive opportunities and are all in the top five markets across the region.

David Green-Morgan, Head of Asia Pacific Research at DTZ, comments: “Hong Kong, Tokyo and Singapore are currently offering some of the most attractive opportunities for investors across all three sectors. Hong Kong and Singapore, two traditionally volatile markets, are set to record strong rental growth, particularly in the office sector, over the next five years as they rebound from sharp falls in rents in 2009. This will result in strong capital growth, boosting returns for investors, and places both markets in the HOT category across the board.”

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