DTZ

24 May, 2011

The recovery in global real estate is being driven by Asia Pacific with its increase of 14% in invested stock during 2010, according to DTZ’s flagship ‘Money into Property’ report. This is in contrast to no real growth in the US and Europe. However, European stock did grow in local currency terms. Consequently, global growth was 3.4% in 2010 following a 3.0% decline in 2009. Asia Pacific’s exceptional growth is forecast to continue into 2011 with a further increase in invested stock of 15%. Asia Pacific’s growth in stock will be driven by both a strong development pipeline and an increase in capital values. This will move the region past the US to become the second largest commercial property market globally.

Within the region, growth in China and Australia (24% and 25% respectively) has led Asia Pacific’s region growth. China has now joined the US and Japan as the third market globally with total invested stock surpassing US$1 trillion.

Contrary to global deleveraging in 2010, Asia Pacific has recorded an increase in its loan to value ratio (LTV). Asia Pacific’s LTV ratio remains the lowest of any region globally. However, a 26% rise of Chinese private debt caused this to be the fastest growing quadrant in Asia Pacific in 2010. Measures introduced to reduce the growth of debt in China and other countries has seen the growth in LTV slow from 2009, but have not brought about a reversal of the trend.

Hans Vrensen, Global Head of Research at DTZ, comments: “The growth in public debt in Asia Pacific in 2010 was dominated by activity in China where public debt rose by over 60%. Whilst governments across the region attempted to slow bank lending to real estate, property companies issued bonds globally to circumvent these policy initiatives and grow their capital base.”

Global investment volumes increased 76% in 2010 to the highest level since 2007. Asia Pacific transactional levels more than doubled to a new record, surpassing Europe for the first time. This record was driven by increases in China and Japan in the first half of 2010. Investment transaction volumes in Asia Pacific are expected to maintain this record level in 2011, with the market remaining active. The impact of economic stabilising policies across the region and the earthquake in Japan limiting further volume growth for 2011.

The latest DTZ Fair Value Index™ (FVI) score for Asia Pacific at 65, is well above the global FVI score of 50. 80% of Asia Pacific markets offer attractive opportunities to investors, with 45% of these categorised as HOT. Whilst yield tightening has been consistent over the past two years, the focus has moved to the strong prospects for rental growth in the region. Markets within the region are experiencing increased occupier demand from expanding domestic companies and multi-nationals locating to the region.

David Green-Morgan, Head of Asia Pacific Research, said: “Some of the core developed markets in Asia Pacific have re-priced over the past 12 months resulting in a reduction in the number of HOT markets. However, numerous attractive investment opportunities still exist across the region and in all sectors. Developing markets dominate the WARM and HOT categories. However, there are still attractive opportunities in developed markets such as Melbourne and Singapore offices. These opportunities will be driven by strong levels of office take up, which will continue to encourage rental growth. In contrast, all of Hong Kong and Taipei’s sectors covered are now COLD together as a result of significant price rises reducing potential future returns.”

Recent research reveals that globally there is US$986billion of capital available for investment in commercial property over the next three years . During 2010 the amount of capital targeting Asia Pacific increased almost 100% to US$311billion. While many global fund managers are looking to increase their exposure to Asia Pacific, 92% of equity targeting the region has been raised within the region. DTZ’s investors survey reveals that the majority of investors looking to allocate funds in Asia Pacific are preferring the retail and residential sectors.

Asia Pacific has seen its debt funding gap increase by US$14bn from November 2010 to May 2011. This is almost entirely attributable to Japan, and is likely to continue to rise with the impact of the recent earthquake decreasing capital values. There is sufficient equity available to address the debt funding gap. The rest of the Asia Pacific region is largely immune to the debt funding gap.

Recent policy initiatives across the region have been aimed at cooling the residential sector. However, it is feasible that governments will look to intervene in the commercial property sector if necessary.

David Green-Morgan, continues: “Despite any future policy changes, we expect Asia Pacific’s momentum to continue on the back of strong economic growth, lack of legacy debt issues and strong investor interest.”