Asian logistics firms look promising, report says
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Logistics properties in the country’s key transport hubs will provide good investment opportunities in 2015 due to their low vacancy and stable income returns, LaSalle Investment Management said in its latest report.
“The reform process in China is good for the real estate sector in the long-term although it is likely to create uncertainty and volatility in the short-term,” said Paul Guest, head of research and strategy, Asia Pacific, LaSalle. “There are considerable risks, both broadly with respect to implementation of reforms and more specifically in terms of real estate supply-demand mismatches. And for this reason, we recommend either a focus on the long-term hold, with the capacity to ride out short-term volatility, or on more opportunistic strategies that can be executed in a short window of opportunity.”
Stabilized modern warehouses in key transport hubs in China, therefore, will be attractive for their low vacancy and stable income returns, albeit very difficult to access. Investors seeking higher returns should focus on developing distribution warehouses, which still provide attractive development margins despite the competition for land, according to the report, which provides a comprehensive survey of, and outlook for the global real estate markets over the next 12 months.
In addition, LaSalle recommends value-add strategies for underperforming office assets in China, particularly in tier-one cities. As for the residential sector, government policies have distorted pricing and investors are advised to remain wary of further government intervention.
Asia Pacific outlook
In Hong Kong, Singapore and South Korea, economic growth in 2015 will remain below long-term averages. This will be partly driven by developments in China and Japan, but also by domestic regulatory, economic or social factors.
Over the next few years, economic growth in Australia will also be slower, with raw material exports to China slackening and the investment boom to sustain these exports winding down. The rebalancing toward domestic drivers will be gradual, with growth in 2015 slightly stronger and more widespread than in 2014.
• Office: Markets with immediate supply shortages will perform best, such as Singapore and Tokyo. The rent growth outlook for Australia has improved as demand has picked up, led by Sydney and Melbourne. It will be one of the better performers in the region over the medium term, alongside Seoul. Singapore is strengthening short-term, but faces a wave of new construction arriving in 2016.
• Logistics: The maturing of the logistics sector in much of Asia, along with strong demand from occupiers and a comparative shortage of modern facilities, translates into a relatively positive outlook. Yields are not expected to rise even where interest rates modestly climb, and in fact will compress further in Shanghai and possibly Tokyo in the short-term.
• Retail: This sector will underperform as below-trend retail sales growth, shallow wage gains and fragile consumer confidence will constrain sales volumes and retailer margins. Therefore, despite low and stable vacancy rates, relatively shallow rent growth is expected in most markets. In Japan, suburban retail has lagged other sectors in terms of yield compression and will start to catch up in 2015.
• Residential: Demand for rental housing in Southeast and North Asia remains relatively weak and only modest rent growth is expected in 2015. Supply has kept ahead of demand across most markets. Some markets will exhibit above-trend rental growth and some yield compression, notably Shanghai and Tokyo. The rally in residential housing markets will continue in Australia.
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