RISING AND SPRAWLING MEGA CITIES IN EMERGING ECONOMIES ARE SETTING THE PACE FOR TOMORROW
BY Zoe Phoon
Bangalore, Mumbai, Ho Chi Minh City (HCMC) and Manila took the top four spots in markets to watch, according to the Emerging Trends in Real Estate Asia Pacific 2017 report.
Each year, Emerging Trends in Real Estate brings together insights of the world’s top investment and development professionals to provide an outlook on investments as well as economic and demographic trends shaping global real estate markets.
It’s published by Chicago-headquartered Urban Land Institute (ULI) jointly with multinational professional services network PwC, and covers the three global regions of the Americas, Asia Pacific and Europe.
The report on Asia Pacific comes with the caveat that the sentiment is one thing and actually placing capital is another.
A Hong Kong-based consultant said all the investors they deal with are looking for opportunities outside their traditional markets.
According to the report, India’s meteoric rise up the rankings is predicted mainly on the belief that it offers early entry the type of long-term growth that has already occurred in China.
More importantly, that is also due to efforts by the current administration to improve transparency and efficiency by overhauling outdated tax structures and implementing pro-investor legislation.
Indian mega cities like Mumbai and Bangalore ranked high in markets to watch, a noted shift away from gateway cities in Japan and Australia.
Bangalore’s major draw is it is India’s main business process outsourcing (BPO) hub.
Recently, IT industries have driven huge demand for new space as local and international companies flocked there to open call-in and R&D centres.
Our Asean neighbour Vietnam is another emerging market drawing a lot of attention.
Economically, the story is similar to China’s, the report said.
Growth in Vietnam is likely to accelerate because it’s seen as an ideal alternative to China where costs are increasing and the business environment has become more challenging for foreign investors.
Vietnam’s commercial market is one to watch, especially in HCMC’s office market which is very strong now.
Pricing is high with yields around 7% to 8% although there was not too much supply coming on in the last two years.
The market is popular with Japanese and big integrated developers out of Singapore and Hong Kong.
HCMC is Vietnam’s main economic engine with GDP growth of 7.5% year-on-year in the first half of 2016.
Investor focus is now turning to HCMC’s commercial market. The city’s economic growth stems from regional trade deals and Vietnam’s status as “China plus one” destination.
Rapid industrialisation in Vietnam suggests there should be scope for investment in logistics and business parks. However, these sectors have yet to see significant momentum so far.
Another Asean neighbour, the Philippines, continues to appeal to investors with its good growth in every sector, especially the office-oriented BPO market.
The country, particularly its capital Manila, has a vibrant economy led by the booming BPO market and strong remittances from overseas workers.
The logistics industry is also seeing accelerated demand thanks to increased consumer sales.
Many buildings are pre-committed before completion and vacancies remain low.
However, the biggest challenge in the Philippines is accessing land, together with increased competition for deals, the report said.
The real problem for international funds is that the market has always been hard to access because it does not have much need for what foreign capital has to offer.
Real estate assets are not being actively traded or sold here and the exit strategy is unclear. Buildings are built mostly and held by developers to generate income.
The report also noted the continued flow of capital from China into Hong Kong, particularly in the office market, driving up rents in the central business district while benefiting lesser known neighbourhoods.
One result has been continued migration to Hong Kong’s secondary business hub in East Kowloon which ULI expects to be a very competitive market in the next two years.
Meanwhile, the Emerging Trends in Real Estate Europe 2017 report said the consequences of Brexit reverberated across European real estate markets, casting a shadow on London and other British cities.
Cities to watch are Berlin, Hamburg, Frankfurt, Munich and Dublin as investors turned away from UK cities.