Property investment in Asia grows in Q3

Office market's fall stabilises due to improvement in employment

(SINGAPORE) The Asian real estate investment market continued to gain momentum in the recent third quarter, as capital values generally stabilised and sentiment improved.

Direct real estate investment in Asia jumped 25 per cent quarter-on-quarter to an estimated US$9.1 billion, according to a report by CB Richard Ellis (CBRE).

The property firm also said in a separate note that the Asian office market down-cycle stabilised in Q3 as a general improvement in the region's employment markets provided clear indication that the office market was close to bottom.

'Investors in Asia have become more optimistic over the past few months,' said Andrew Ness, executive director of CBRE Research for Asia. 'Cash-rich domestic buyers continue to underpin investment activity, while foreign investors are slowly emerging from a quiet first half-year to look for medium to long-term investments.'

However, several Asian governments - including those in Hong Kong, Singapore, China and South Korea - have voiced concern that real estate is rebounding too strongly and have taken steps to limit risks associated with potential over-investment, Mr Ness said.

'The measures are likely to cool down the market but are expected to have only a limited effect on pricing,' he said.

In Q3, Hong Kong accounted for 36 per cent of total investment sales, followed by China, Korea and Taiwan. In Singapore, the number of transactions above $15 million continued to edge up quarter-on-quarter, with volume exceeding US$900 million, or 10 per cent of the total volume in Asia.

However, overall transaction volume remained low in the first nine months of this year, falling 49 per cent year-on-year.

By sub-sectors, the Asian office market attracted US$4.7 billion of investment in Q3, or 52 per cent of the total flow of capital. Residential properties accounted for 16 per cent and the retail sector 13 per cent.

In a separate report, CBRE said that Asian office markets continued to improve in Q3 as rental falls slowed further.

The overall vacancy for Asian cities remained at 12.5 per cent - unchanged from the previous quarter. But Tokyo, Hong Kong, Beijing, Seoul and several South-east Asian cities all recorded a minor decline in the amount of space vacancy.

'Corporations outside of the export trade sector commenced expanding headcount and financial institutions began hiring staff to pursue high-margin businesses as economic conditions improved,' said CBRE. 'Historically, office vacancy has trailed closely behind the unemployment rate.'

On the back of this, the CBRE Asia Office Rental Index shows office rents in Asia fell 3.1 per cent in Q3, decelerating from a 6.7 per cent decline in Q2. CBRE expects the rate of decline to ease further or bottom out in the coming months.

In Singapore, office rents fell for a fourth consecutive quarter in Q3 but the pace of decline eased.

Leasing activity is also beginning to pick up slightly, industry players have said. Marina Bay Financial Centre (MBFC) said in an update yesterday that BHP Billiton will take up an additional 89,000 sq ft of space at Tower Two, bringing the total floor area leased at the development by the Australian resource company to 231,000 sq ft.

Overall pre-leasing levels at MBFC now stand at 64 per cent.

Source: Business Times, 5 Nov 2009