RICS CEO Briefing: Q4 2016

Conditions across Asia Pacific remained highly nuanced in Q4 according to the Royal Institution of Chartered Surveyors (RICS) commercial property survey, but one trend held across the region – retail underperforming the industrial and office sectors. Indonesia was the exception to this, helped by better supply/demand fundamentals for the retail.

3 February 2017
 
Retail continues to lag office markets across Asia Pacific
 
An overview
 
Conditions across Asia Pacific remained highly nuanced in Q4 according to the Royal Institution of Chartered Surveyors (RICS) commercial property survey, but one trend held across the region – retail underperforming the industrial and office sectors. Indonesia was the exception to this, helped by better supply/demand fundamentals for the retail.
 
In a number of cities across the region, a majority of respondents saw valuations above fair value to some degree. This was led by Tokyo, where 95% of respondents saw valuations as expensive, and followed by Auckland where ~90% of respondents saw valuations as expensive. Alternatively, Perth, Jakarta, Bangalore, and the Indian National Capital Region were seen as the cities with the most reasonable valuations relative to fundamentals.
 
RICS commentary
 
Feedback from chartered surveyors throughout the region indicated that sentiment had moderated slightly from Q3 across most markets. However sentiment was fairly dispersed throughout the region, largely due to domestic macroeconomic fundamentals.
 
The modest pickup in foreign investment flows reported in Q3 appeared to reverse in Q4 across most markets. This may partially be attributed to a slowdown in Chinese investment amid stricter capital controls, as China has been one of the largest intra-regional investors. However demand for prime assets, in particular office space, remained high, particularly in core locations such as Tokyo, Sydney and Auckland.
 
There remains a great deal of uncertainty moving forward. Indian markets are likely to recover from the transitory effects of demonetization by Q2 2017, while Chinese markets are likely to continue to see tighter credit conditions. However for most of Asia Pacific the outlook will be sensitive to US trade and fiscal policy which will determine investment flows and the cost of credit.
 
Markets on the up
 
Australasia – sentiment remains robust
 
Both the Investor Sentiment Index and Occupier Sentiment Index remained in positive territory for Australia and New Zealand in Q4, signalling momentum in both investor and occupier markets. The region was buoyed by bullish expectations in key markets of Sydney, Melbourne and Auckland, where contributors are forecasting some of the largest increases in capital values and rents over the next year of any global market.
 
Indonesia – green shoots of a recovery
 
Although sentiment surrounding investor and occupier markets moderated slightly in Q4, there was still evidence that a recovery in the market remains underway. Contrary to other regional markets, there remained strong demand for retail and industrial properties while it appeared that the office segment is still trying to shake off excess supply.
 
Momentum slowing
 
Japan – split between office, retail more pronounced
 
Although investor and occupier sentiment remained positive in Japan in Q4, the dispersion between the office and retail segments became more pronounced. The retail occupier market was particularly subdued, following a slowdown in tourist spending from mainland Chinese and sluggish domestic wage growth. However real estate will likely remain in demand as an asset class with domestic investors as long as the Bank of Japan continues its Negative Interest Rate Policy.
 
India – demonetization weighs on sentiment
 
Both the Occupier Sentiment Index and Investor Sentiment Index turned negative in India during Q4, for the first time since 2013, indicating a modest slowdown in momentum. Much of the downturn was borne by the occupier segment of the retail sector, which has seen an outsized impact from the government’s demonetization policy. However respondents’ longer-term forecasts only moderated slightly, indicating that the effects of demonetization are seen to be transitory.
 
China – tighter credit environment dampens outlook
 
Respondents from mainland China lowered their forecasts for capital values and rent in Q4 of 2016. The decrease comes amid a major policy shift from the mainland Chinese government which has moved to crack down on leverage. However, anecdotal evidence suggesting a shortfall of prime office space in first-tier cities appears to be evident given respondents’ prime office capital values expectations remain robust.
 
Hong Kong – mainland capital controls continue to weigh on retail
 
Hong Kong continued to be one of the most nuanced markets in Asia Pacific. Headline sentiment was flat, but the sector breakdown reveals that office continues to outperform retail by a wide margin. Mainland firms continue to be the main occupiers of the prime Hong Kong office market, while the pullback in mainland tourist spending continues to weigh on retail.
 
Outlook remains subdued for Singapore, Malaysia
 
Singapore – oversupply continues to overwhelm demand
 
Occupier and investor markets remained very subdued in Q4 for the seventh consecutive quarter. The supply of commercial properties remained elevated across all segments and demand remained soft. The majority of respondents (67%) see property as expensive to some degree, up from 36% in Q3.
 
Malaysia – occupier, investor sentiment remains downbeat
 
Respondents reported that occupier and investor sentiment remained downbeat in Q4, signalling a continued slowdown in the market. The majority of respondents (70%) continued to see the market in some phase of a downturn. However this was slightly reduced from the 90% of the same view in Q3, while correspondents see a smaller decline in rents and capital values over the next year.
 
For more information, contact
Sean Ellison
Senior Economist, APAC

 

COMMENT
VIEW COMMENT
 
BACK TO TOP