It’s a mixed bag in 2018 with Ho Chi Minh City in the lead while Taipei sees fewer investors.
The survey results for this year’s Emerging Trends in Real Estate® Asia Pacific report by pwc and Urban Land Institute reveal the following:
Leading buy/hold/sell ratings for the various asset classes are as follows:
• Office—buy Ho Chi Minh City, sell Taipei.
• Residential—buy Ho Chi Minh City, sell Seoul.
• Retail—buy Ho Chi Minh City, sell Taipei.
• Industrial/distribution—buy Shenzhen, sell Taipei


After two years of declining rents caused by a sluggish economy and a glut of supply, Singapore’s office market ranking has soared from next-to-bottom last year to third this year. Some, however see talk of a bottoming as premature.
The residential sector is also showing signs of bottoming, with rising transactions and a slight uptick in pricing for the first time in four years. The rebound seems likely to be sustainable, given the momentum of several years’ worth of pent-up consumer demand.


This year, Shanghai has performed better than expected. Transactions have been driven partly by surging demand from domestic buyers who have been barred from exporting capital as a result of a government regulatory crackdown, and partly by foreign core funds flush with new capital they need to deploy.
Investors have always played the rental growth/capital appreciation card in Shanghai and given strong ongoing demand for office space, this trend will continue. Also, a lack of available stock in prime locations is driving an increasing amount of activity into fringe CBD or outlying parts of the city.

Ho Chi Minh City

A large amount of cash is pouring into this city, thought to repeat Mainland China’s rise from 15 years ago in terms of property price inflation. Bureaucracy remains an issue, but restrictions are slowly being eased. Investors from South Korea and Japan love it.
Most investors are focused on the residential sector. Home sales and pricing have been strong over the last three years, but in a volatile market there are signs the cycle may be peaking.
Given the small amounts of investible stock, those focused on the commercial side will be looking mainly at development, usually by way of joint ventures with local developers. Completed assets do exist, however. With most existing stock having been built by domestic developers, there are now opportunities to buy and fix.
[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”1,2,3,4,5,9″ ihc_mb_template=”1″ ]


At present, yields on office properties in Shenzhen are the lowest in China. At around 3.5%, they stand below the yield on the Chinese sovereign bond, raising questions of relative value compared with other Chinese cities, especially in view of a big incoming supply pipeline.
Shenzhen assets have seen some of the highest capital value increases in the country in recent years. One reason is the renewed momentum of the “Greater Bay Area” (GBA) scheme, a government-backed project aiming to create an integrated city cluster from 11 metropolises around the Pearl River Delta—including in particular Shenzhen, Hong Kong and Macau. While the economic rationale for the GBA has been questioned, there can be no doubt it has acted as a catalyst for significant amounts of new property development, in particular in Shenzhen’s vast 26 mil-sqm Qianhai Free Trade Zone.
Shenzhen’s residential market was the hottest in China in 2016 but has continued to deflate slowly in 2017, largely as a result of a local government policy (repeated elsewhere in China) requiring downward adjustments of prices at newly developed projects. Strong demand continues for new homes, however, resulting in the overspill being absorbed in neighbouring townships.


The rapid rise in rents and asset prices over the last 5 years has made Tokyo a home run for those who invested in the wake of the introduction of Prime Minister Shinzo Abe’s quantitative easing program in 2013. But the appeal of the rental-growth play has faded more recently as upward pricing pressures in Japan have run out of steam.
Tokyo’s rise in the rankings this year, therefore, has more to do with the emergence of a new type of yield-seeking investor looking to play the spread between the yield on the property and that available on Japan’s sovereign bond, which currently trades at around zero. The spread is small but seen as a safe and stable way to outperform the alternative— investing in the sovereign itself.
With office rents stagnant and a looming problem with incoming supply, many foreign investors are now rotating instead into residential assets, which are perceived to be a safer option. As a result, however, competition for stock has increased and residential yields in some cases have quickly declined to reportedly less than 3% percent.


With office rents in Guangzhou about half those in Beijing and Shanghai, the city remains a (relatively) poor cousin of its northern peers. Nonetheless, solid economic growth means that demand for Grade-A space remains strong. So while vacancies are high (at about 10%) and a substantial pipeline of new supply is on the way, the fact that relatively little is being built in core submarkets means there is actually a shortage of available space in the best-quality buildings.
Rental growth for prime properties therefore remains strong, growing at an annualized rate of 6.1% year-on-year in the first half of 2017. It is expected to remain strong going forward.
Meanwhile, activity in outlying areas is booming, with the government directing its expansion efforts for both residential and commercial properties toward a handful of satellite districts. This has provided opportunities for foreign developers to be involved in building both business parks and residential communities in these areas, linked by train and road both to Guangzhou proper and other cities in the area. An example is One, the Sino- Singapore Guangzhou Knowledge City, a greenfield master-planned township designed to accommodate around 500,000 inhabitants.


Investment in provincial Japanese cities has boomed in 2017 as investors migrate away from Tokyo looking for higher yields and less competition. Osaka has emerged as a favourite play, followed by Yokohama, Fukuoka, and Nagoya. In many ways, Osaka can be considered the poster child for core investors now taking refuge in secondary markets. Japan is changing to a service-based economy and Osaka offers a lower cost of living and much lower overall operating costs compared to Tokyo.
Declining demand among (especially foreign) investors for Japanese office assets means that investment levels in the sector appear to have plateaued. While some have switched to the residential sector as a result, yields have now also compressed here, leading some to question the relative value of Osaka residential assets compared with equivalent properties in Tokyo.


Despite a steady pipeline of newly developed office buildings over the last two years, Beijing continues to show a seemingly unquenchable thirst for new space, partly as domestic companies nationwide continue to establish headquarters in the capital.
Fundamentals have remained strong. Vacancies are fairly low (at around 6%) and rents have shown only marginal declines from levels that currently make them the second highest in Asia after Hong Kong. Incoming new supply in non-CBD districts (including a long-term plan to relocate more government and private sector offices to satellite cities) will alleviate downtown demand pressure to some extent, but with limited space remaining in the most popular CBD and financial district areas, rents and values there are likely only to increase.
Stringent conditions set by the government for new land auctions in the capital, including price ceilings for sales prices of finished properties, means that developers have little prospect of making a good margin (or, at times, any margin) when buying land for residential. As a result, auction prices and land sales have plunged.


Of all India’s major cities, Mumbai is the one least dominated by IT-sector demand. This means it has to some extent missed the opportunity in the business outsourcing boom that has been so apparent in cities like Bangalore. At the same time, Mumbai remains the financial capital of India and so has benefited from the recent strength of India’s capital markets. Absorption has therefore been strong, driven also by demand in coworking, manufacturing, and services companies.
Although steadily declining, Mumbai’s office vacancy rate (at around 17%) continues to be very high, and with a pipeline of incoming supply totalling about 40% of existing stock, fundamentals would appear to be negative. In reality, however, Mumbai continues to lag behind in term of Grade-A stock, meaning that any new supply is quickly taken up and that rental growth for those properties remains strong.
While Mumbai has a general shortage of good retail space, which therefore creates demand, the question of location is especially important because of the sheer size of the metropolis.

Hong Kong

The low ranking accorded to Hong Kong in this year’s survey is once again an indication of the lack of investment opportunity due to high prices and a relatively illiquid market rather than concerns about an impending downturn. In fact, Hong Kong’s ranking this year is several places higher than in the recent past, reflecting a number of factors.
First, there has been a pickup in general investment activity. Although Hong Kong has historically been a market where very little core stock trades, a number of large transactions made it the biggest investment destination in Asia in the first half of 2017.
On the retail front, there now seems a bottom in sight after several years of declines. The big rental differential between Grade-A and Grade-B buildings resulted in both foreign and local players looking for potential deals, very often with coworking or co-living potential in mind.
The government has recently indicated interest in reviving a defunct scheme to encourage renovations of former industrial buildings into office or possibly residential assets. This would probably reignite interest in redevelopment plays should it come to fruition.


Interest in Jakarta office assets has plunged in the past few years due to supply concerns. According to JLL figures, vacancies have risen to nearly 30%, while rents plunged 11% year-on-year in the first half of 2017, continuing a decline that began in 2015. That said, the market has shown itself receptive to new supply, with good buildings close to transportation links having no problem finding tenants. With incoming supply set to wane beginning in 2018, demand might go up.
On the residential side, the high-end market has been hit especially hard, although a handful of new projects in the city center—generally mixed-use— have recently drawn surprisingly strong responses. This is partly a result of pentup demand and partly because investors are looking to buy a particular type of property – those near an LRT line and below the IDR5 billion (about US$370,000) price point. That means smaller one-bed units of 40 to 50 sqm.
Foreign investor interest in the logistics sector—especially that connected with e-commerce—has now increased given the shortcomings of existing infrastructure.


India’s emergence as a center for the business process outsourcing (BPO) industry has been led mainly by Bangalore, whose reputation as an IT center acted as a magnet for scores of foreign companies to set up outsourced-service facilities there. Early foreign investors in this sector bought income-producing assets in business parks in conjunction with local partners and scored some major successes. Some of these assets have now been earmarked for sale, in particular via India’s newly emerging REIT sector, which is expected to launch its first IPO in the first quarter of 2018. Today, operators of BPO facilities in Bangalore have reported rental growth of around 8 to 9% annually, together with healthy new tenant demand. Still, Bangalore’s BPO story may now be tapering off as the emergence of automation and artificial intelligence technologies creates a long-term drag on demand for backoffice and customer service functions globally.
Nowadays, occupiers are the same, but the kind of work being outsourced here is slightly different. There is more cloud computing, more robotics, AI, and that kind of profile of work. Compared to a BPO, they require less space because you can’t have 5,000 software developers working on cloud computing, maybe you just need 500.


Thailand has endured a shaky reputation among foreign fund managers on account of numerous coups and other political crises in recent years. Its economy and real estate markets continue to tick along notwithstanding the problems, with both rentals and capital prices trending steadily higher Given this, the bigger obstacles for foreign investors looking to buy commercial assets in Bangkok are a shortfall of investable stock combined with a very illiquid market.
When assets do trade, transactions have long been dominated by local developers and investors. The same applies to prime land sites, with a relatively small number of new projects in the pipeline. At the same time, there has been increasing activity by capital from Japan, Singapore, and, most recently, China seeking to participate in CBD office projects in partnership with a local player.
Probably the obvious option for international investors in Thailand is the tourism sector, with new arrivals—in particular from China—growing very fast. Resorts were the asset class most often mentioned by investors, together with hotels in the capital.
The other source of potential growth for international investors in Thailand is in the condominium market, especially in Bangkok, with sales to foreigners mushrooming in the last few years.
This is providing scope for investments by foreign groups looking to sell their allocated portion of projects to buyers in their home countries. In 2016, around 80% of foreign purchases involved buyers in either Hong Kong or China. Thailand’s location is also conducive for retirement communities for rich foreign residents.


In recent years, office demand in the Philippines has been from the BPO sector. Although growth in this area has slowed, office fundamentals continue to be very strong. Vacancies stand at a low 3%, while rent and capital values in the first half of 2017 are up a healthy 5.3% and 8.6% respectively year-on-year, according to JLL. Land prices, meanwhile, rose between 25 and 33 % in the most popular areas of the city.
The impending relocation of the Philippine stock exchange from Makati to Fort Bonifacio will mean a wholesale change to the shape of Manila in which the finance guys move out of Makati where the stock is very old and badly managed to shiny new buildings where currently there is some vacancy. Makati will probably be backfilled with BPOs, so structural change is going to happen, says an analyst.
To the extent that BPO growth has slowed, the slack has been taken up by new demand from offshore online gaming companies, which are now the second-largest occupier of office space in metro Manila after the BPO sector, according to an analyst. It is uncertain however whether this trend is sustainable.
Sentiment among overseas investors has recently been dented by political controversies, an on/off territorial rights dispute in the South China Sea, and ongoing fighting with insurgents in the south of the country. Demand for office space is still strong however.


Despite its lowly ranking (likely due to the current crisis with North Korea), Seoul continues to feature prominently on the radars of many core fund managers in the region, mainly because it trades at yields slightly higher than other Asia Pacific core markets such as Tokyo and Australia. In addition, the yield spread between effective rents (around 4 percent) and the local sovereign bond (around 1.8 percent) is quite wide.
Most investors are focused on buying stabilized office assets, although fundamentals have recently been weak. Value-add strategies are now becoming more popular, a logical move given that much of the local office stock is quite old.
Another asset class currently popular in South Korea is logistics, which, is similar to Japan 15 years ago. The big global operators have been slow to develop in Seoul, meaning that much of the existing infra- structure is aging and of poor quality. Recent new investment in the sector now threatens to create oversupply, but there remains scope to develop for the right type of facility in the right location.

New Delhi

New Delhi remains unpopular with investors compared with other major Indian cities. This is mainly due to an emphasis on development in the residential sector, which has recently been on a downtrend. While this has created opportunity to supply bridging finance, not many foreigners have pursued this option.
As a group, northern Indian developers tend to be overleveraged and are often holding large portfolios of high-end housing, an asset class that is in oversupply. Many projects have been subject to long delays and some developers have acquired poor reputations as a result.
In the office sector, Delhi missed its chance to grab a share of the surging growth seen in business parks located in the south. Although there has been some recent demand from IT companies, uptake overall has been slow, leaving office vacancies at an elevated 30%, according to JLL. But in general, rentals have been holding firm especially for prime properties in good locations.

Kuala Lumpur

Markets in Kuala Lumpur have remained stagnant over the last year, with oversupply continuing to pose problems given very moderate levels of take-up as multinationals in the oil and gas sector downsize. CBD vacancy rates have inched up to around 15%, according to JLL, and are unlikely to subside any time soon given elevated rates of incoming stock. Rents have so far remained flat, but many analysts expect they will trend downward over the next few years.
“Sentiment among consumers is quite low and a little bit shell-shocked at the moment. There’s just oversupply in everything everywhere you look. It’s a very insular market and there is a big risk of filling up vacancies,” says an investor.
The same situation applies in the residential sector, where the number of unsold units has continued to rise, leading developers to delay launches. In particular, previously strong demand from Chinese buyers has softened as a result of capital controls imposed by the Chinese government. This has especially affected the enormous developments now underway by Chinese developers in the southern city of Johor Bahru.


Although the government changed the law a few years ago to force Taiwan’s cash-rich insurance companies to invest their capital in markets outside Taiwan, the local commercial property market remains captive to institutional owners, with very few assets trading and yields that are some of the lowest in Asia, at around 2.4%. Investment activity in the first half of 2017 was 58% lower than in the same period of 2016 as buyers refused to accept high asking prices.
As a result, most recent activity has focused on redevelopment projects, as insurance companies move to upgrade aging stock.
Foreign investor participation remains minimal, not least because there is very little to buy. That said, there has recently been some pickup in foreign investment in the commercial sector.
The residential market remains weak, although after two years of price declines resulting from higher government property transaction taxes, it may now have hit a bottom. Sales volumes are increasing, prices have inched up, and land transactions also have improved as developers begin to add to land banks. That said, affordability remains a major issue.

    Your Cart
    Your cart is emptyReturn to Shop