Knight Frank report projects office rental growth for Asia Pacific

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Independent global property consultancy Knight Frank recently launched its Global Cities2016 survey report, examining the market performance of 20 global cities across the world, of which 10 are in Asia Pacific.

The UN is forecasting the world’s cities to increase in population by 380 million people in the next five years.  Consequently, the planet will need to build the equivalent of five cities the size of Los Angeles every year between now and 2020, and all the supporting infrastructure.

The report estimates that the number of people moving to cities over the next five years will be more than three times the current population of Japan, as they try to make the most of the economic advantages cities increasingly deliver.

This photo shows the Bombay Stock Exchange in Mumbai, India. Office rents in India’s most populous city are expected to exceed 20% in growth over the next 3 years according to a report released by property consultancy Knight Frank. (Photo/Wikipedia commons)

Cities in high-income countries are projected to rise in population by 34 million by 2020, the equivalent of three cities the size of Paris.  City populations in middle-income countries are forecast to increase by 290 million people over the same period, which is about 12 cities the size of Shanghai.

This increased urbanisation, combined with greater demand driven by economic growth, will cause office rents to rise in the key global cities.  Knight Frank forecasts that Madrid will top rental growth at 22.2% by 2018, followed closely by Mumbai (21.3%) and San Francisco (20.2%).

Nicholas Holt, Head of Research, Asia Pacific, Knight Frank Asia Pacific, commented, “Despite the slowdown of China and its impact on the region’s economies, the Asia Pacific region will still see relatively strong economic growth over the coming years.  Coupled with the huge forces of urbanisation in India and China, the next three years are still very much a growth story for the Asian Global Cities.

“Three of the top five global cities for office rental growth over the next three years are forecast to be in Asia Pacific, with the Indian cities of Mumbai and Bengaluru, benefitting from a strengthening economy, in second and fifth place respectively.”

Marcus Burtenshaw, Executive Director and Head of Commercial for Knight Frank Thailand added, “Bangkok has been highlighted as a city to watch and with good reason.  New investment incentives targeting the software industry and the digital economy, coupled with initiatives such as improved benefits for regional operating headquarters, should help to support demand.  Yet, as occupancies in the city’s high rise office towers climb to over 90% and rents reach record levels, firms are increasingly looking towards so called ‘new’ locations and chief amongst their concerns is convenient access to mass transit.  So with over 240km of new mass transit routes currently under construction, we expect that these new lines will breathe new life into the districts that they serve, making them more desirable locations to live, work and play.”

Looking at the total real estate transaction volumes within each market in H1 2015, India has emerged as the market with the highest percentage of foreign investment at 67%, followed by Malaysia (59%) and Singapore (43%).

Nicholas Holt explained, “The growth of foreign private equity investment into the Indian real estate market has been a notable characteristic of the region in the first half of 2015, with US and Singaporean investors the most prominent.  In Southeast Asia, Malaysia has also seen a significant percentage of foreign interest with groups from Australia, Singapore, China and Canada, purchasing assets in the first six months of the year.  Given the positive economic performance of India, and a potential counter-cyclical approach towards investing in Malaysia (despite the tough conditions), we expect foreign groups to continue to look at these markets in 2016.”

Singapore property remains on the radar for many foreign investors, given the city’s multiple qualities especially in infrastructure and urban planning, comments the Knight Frank report.  Despite the prevailing property cooling measures and downward trend in prices and rents, foreign investors are generally confident of Singapore’s long-term prospects.  They are mainly from China, Australia and the Middle East, with the highest investment sale in 2015 clocked in at S$1.67 billion for Paya Lebar Central awarded to the joint venture between Australian developer Lend Lease and sovereign wealth fund Abu Dhabi Investment Authority.”

Meanwhile, a growing wave of Asian outbound capital is targeting core real estate assets in Western markets.  Over the last 24 months, Asia investments into the US, UK, Australia and Continental Europe totalled US$78.4 billion.

Neil Brookes, Head of Capital Markets, Asia Pacific, Knight Frank Asia Pacific explained, “We are seeing strong desire from Asian investors to diversify their holdings into markets outside of Asia, particularly Europe and Australia, and a substantial sell down of assets in China due to the worsening economic conditions.”

(Source: Knight Frank)