The Asian Pivot

In the first six months of 2018, we have witnessed a shift in the global real estate industry. A major pivot has occurred in the source of investment flows coming from Asia Pacific. The island nation of Singapore is now the largest single source of global commercial real estate capital from this region, supplanting China.

Surprising to some, no doubt. But from where we stand, this pivot is part of a larger story wherein Singapore and South East Asia nations are becoming more visible players in the world of commercial real estate.

Singapore clearly stands at the forefront of the evolution of South East Asia commercial real estate. In the first half of 2018, outbound investment from Asia Pacific activity totaled US$25.4 billion, led by Singaporean capital, which accounted for 36% of the region’s total. Singaporean (36% of the total outbound – US$9 billion) and Hong Kong (US$6 billion) investors overtook Chinese investors (US$5 billion) as the most active ones. Substantial funds flowed from Singapore into London and the US, to capitalize on favorable yields and stable returns.

While encouraging, the South East Asia story is not confined to what is arguably its most developed economy. The emerging markets of Asia, particularly India and increasingly South East Asia are growing at a rapid pace – and Singapore capital is well aware of this long-term potential. These will represent a greater percentage of GDP globally going forward, especially India and South East Asia. In the latter, strong demographics and a rising middle class will be one of the major stories of the next two decades.

As a result, developers are competing fiercely for prime development sites and investors are lining up to play broader roles in markets like Thailand and Vietnam. This interest is already having a knock-on effect in the region’s larger urban centers.

Bangkok is a clear example of a market that is rapidly developing as demographic drives mature. Real estate is booming in the Thai capital. An influx of new development is driving up prices to record levels and both condominium prices and office rents are at new highs.

Other drivers in Thailand are also attracting investors. In 2018, the Thai economy is picking up on the back of growth in exports and tourism. Thailand finished last year with 3.9% Y-o-Y gross domestic product (GDP) growth, resulting from a significant increase of 9.9% in exports to all major markets. The knock on effect is investment in manufacturing, logistics, infrastructure and hospitality, all of which appeal to both domestic, regional and global investors.

Given that Thai banks remain conservative about new project lending to developers, Thai developers are seeking funding from foreign partners. Most joint ventures to date have been with Japanese investors on a project-by-project basis for condominiums, further cementing the market’s status as an established destination for inbound capital and expertise.

Vietnam presents a similar opportunity, albeit at a different entry point for investors from markets like Singapore, Japan and Korea. Measured on all metrics, Vietnam’s strong economic growth and increasing middle-class and disposable income create opportunity for real estate growth – attractive to Singapore and global institutional investors.

Our interactions clearly indicate that foreign investors have opportunities to build up their stocks of prime commercial assets over the next five to ten years. As a result, foreign investors are actively looking for development sites in central business districts (hotel and office) and near Metro Line stations (for office, retail and residential). In Ho Chi Minh City, operating assets such as office buildings are in demand because of limited available stock.

The Vietnam capital market showed notable increases in 2016 and 2017, both in terms of transaction values and the number of transactions, and this trend is expected to continue in 2018. According to CBRE statistics, transactions valued at US$1.7 billion and US$ 1.5 billion were recorded in 2016 and 2017 respectively. This is encouraging and part of the process of Vietnam’s ongoing transition from peripheral to major South East Asia real estate market.

Further afield, various domestic and intra-regional infrastructure projects in South East Asia are in the works or underway. Its effects on the commercial real estate market seem to be bearing fruit and will help in further developing markets such as Thailand and Vietnam, and increasingly, the Philippines and Indonesia.

Elsewhere, opportunities in the e-commerce market in South East Asia are poised to grow by leaps and bounds, buoyed by the region’s young population and high mobile phone penetration. In the longer term, decentralisation within metropolitan areas and sub-national regions will provide plenty of opportunities for developers, owners and occupiers of space.

This very fact further reinforces Singapore’s case as a regional hub for South East Asia. For capital. For expertise. For best practices. And as the markets of South East Asia evolve rapidly as major commercial real estate sectors in their own right, they will complement Singapore and unify to form one of the world’s most dynamic property sectors. South East Asia is clearly a long-term story –  one that both occupiers and investors should be excited about.

By Anshuman Magazine, Chairman, India & South East Asia, CBRE.