R E A L E S TAT E M A R K E T O U T LO O K
TABLE OF CONTENT PAGE 05 PAGE 07 Softer growth ahead PAGE 13 PAGE 20 Workplace efficiency will be key Creating the total retail experience 2
TABLE OF CONTENT PAGE 26 PAGE 33 Niche sectors set to take off Creativity vital to unlocking hidden value 3
EXECUTIVE SUMMARY E C O N O M Y R E T A I L O F F I C E Figure 1: 2017 Outlook Leaders in Rental Growth and Investment Volume Grade A Office rental growth Retail rental growth Logistics rental growth Investment Volume Sydney Auckland Shenzhen Australia Bangalore Sydney Shanghai Japan Source: CBRE Research, January 2017. 5
EXECUTIVE SUMMARY I N V E S T M E N T L O G I S T I C S 6
ECONOMIC OUTLOOK SOFTER GROWTH AHEAD G R O W T H E X P E C T E D T O E A S E S L I G H T L Y 1 Sourced from Oxford Economics, January 2017. Same for other GDP figures if not stated. 8
ECONOMIC OUTLOOK Figure 2: Real GDP Growth Rate % 8 6 4 2 0-2 -4-6 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018F 2020F Source: Oxford Economics, CBRE Research, January 2017. Asia United States Western Europe 9
ECONOMIC OUTLOOK KEY RISKS ( 1 ) T R U M P, B R E X I T A N D M O R E C H A N G E I N T H E P O L I T I C A L W O R L D 10
Vietnam Indonesia India China Malaysia New Zealand Australia Thailand Taiwan South Korea Japan Singapore Hong Kong ECONOMIC OUTLOOK ( 2 ) T H E P O S S I B I L I T Y O F F A S T E R U. S. R A T E H I K E S Figure 3: Policy interest rates in Asia Pacific % 18 15 Possible rate hike 12 9 6 3 0-3 6.5 6.5 6.3 4.4 3.0 1.8 1.5 1.5 1.4 1.3-0.1 1.3 1.1 Ten Year High 2017F Ten Year Low Source: Various Central Banks, Monetary Authorities, CBRE Research, December 2016. Note on policy rates: Australia Cash rate; China 1-yr lending rate; Taiwan Discount rate; India Repo rate; Indonesia BI rate; South Korea Base rate; Thailand 1-day repo rate; New Zealand Official cash rate; Japan Overnight call rate; Hong Kong 3M HIBOR; Singapore 3M SIBOR; Vietnam Refinancing rate; Malaysia Overnight rate 11
Vietnam Indonesia Philippines Malaysia Hong Kong China Australia Thailand South Korea New Zealand Singapore Japan India Taiwan ( 3 ) A S I A N F X D E V A L U A T I O N I N A W O R L D O F P O S I T I V E U. S. G R O W T H ( 4 ) N A R R O W I N G O F P R O P E R T Y Y I E L D S P R E A D S A N D R I S I N G I N F L A T I O N Figure 4: Inflation Rates in Asia Pacific % 10 Lower inflation 8 6 4 2 - (2) Source: Oxford Economics, CBRE Research, January 2017. 2016E 2017F 10-year average 12
OFFICE SECTOR WORKPLACE EFFICIENCY WILL BE KEY Occupiers are set to focus on improving space efficiency and portfolio optimisation, resulting in a further decline in net absorption Rental growth will be stagnant and remain low for longer Landlords are expected to focus on placemaking to attract tenants O C C U P I E R S T O R E M A I N C A U T I O U S 14
OFFICE SECTOR S T R O N G E R F O C U S O N P O R T F O L I O O P T I M I S A T I O N S L O W E R A B S O R P T I O N O F O F F I C E S P A C E Space utilisation: Flexible working: Headcount planning: Location selection: 15
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F Million sq. ft. (NFA) OFFICE SECTOR T E C H S E C T O R T O L E A D D E M A N D Figure 5: Asia Pacific Office Net Absorption and Annual New Supply 60 50 40 30 20 10 - Source: CBRE Research, January 2017. Q1 Q2 Q3 Q4 Forecast Annual New Supply 16
Shanghai Delhi NCR Shenzhen Guangzhou Tokyo Jakarta Beijing Mumbai Kuala Lumpur Hong Kong Seoul Manila Makati Singapore Hanoi Taipei Ho Chi Minh City Auckland Bangalore Bangkok Melbourne Sydney Perth Brisbane million sq. ft. (NFA) OFFICE SECTOR M O R E S U P P L Y B U T L I M I T E D C H O I C E Figure 6: Asia Pacific Grade A Office Net Absorption and Development Pipeline Forecast 30 New Supply > Demand Demand > New Supply 25 20 15 10 5 0 Net absorption (2017-2019 forecast) New supply (2017-2019 forecast) Remarks: Grade A new supply for Asian markets; total grade net addition for Pacific markets Source: CBRE Research, January 2017. 17
Sydney Bangalore Melbourne Bangkok Guangzhou Gurgaon -core Auckland Tokyo Brisbane Mumbai Hanoi Ho Chi Minh City Taipei Delhi Seoul Kuala Lumpur Hong Kong Shanghai Shenzhen Perth Beijing Jakarta Singapore Grade A Office rental growth (%) OFFICE SECTOR R E N T A L G R O W T H T O R E M A I N W E A K Figure 7: Grade A Office Rental Outlook 25 20 2016F 2017F Bottoming Out Peaking 15 10 5 0-5 -10-15 Remarks: Rental growth refers to Grade A offices in CBD areas only Source: CBRE Research, January 2017. 18
Vacancy Rate Forecast in 2017 (%) OFFICE SECTOR Figure 8: 2017 Vacancy Rate and Annual Rental Growth Forecast 30 25 20 Jakarta Perth Taipei Leader Laggards 15 10 5 0 Kuala Lumpur Brisbane Seoul Gurgaon core Singapore Shenzhen Guangzhou Bangalore CBD Shanghai Hong Kong Bangkok Melbourne Beijing Tokyo Sydney Auckland Mumbai CBD Delhi CBD -6-4 -2 0 2 4 6 8 10 Rental Forecast in 2017 (%) Source: CBRE Research, January 2017. S T R O N G E R F O C U S O N P L A C E M A K I N G Amenities: Analytics: Smart community: Agility: 19
RETAIL SECTOR CREATING THE TOTAL RETAIL EXPERIENCE Retailers will be more disciplined towards store expansion. More resources will be dedicated to opening and/or upgrading flagship stores in core locations. Shopping centres will spend more on events and marketing and replace general retail tenants with experience-based retailers to increase footfall. S L O W E R R E T A I L S A L E S G R O W T H 2 emartker, December 2016. 21
Y-o-Y Change RETAIL SECTOR Figure 9: Y-o-Y Growth in Asia Pacific E-commerce Sales and Offline Sales 50% 45% 40% 35% 30% 25% 20% 15% 24% 10% 5% 0% 5% 2012 2013 2014 2015 2016 2017 2018 2019 2020 E-commerce Sales Offline Sales E-commerce as % of total retail sales Source: CBRE Research, January 2017. R E C O N F I G U R E S T O R E N E T W O R K S 22
RETAIL SECTOR Figure 10: Traditional vs Refined Store-Opening Strategy TRADITIONAL STORE-OPENING STRATEGY REFINED STORE-OPENING STRATEGY FLAGSHIP STORE + SATELLITE STORES Satellite stores to focus on efficiency Flagship Store to focus on in-store experience and brand education Source: CBRE Research, January 2017. C A R E F U L A N D C A U T I O U S E X P A N S I O N 23
RETAIL SECTOR M O R E S U P P L Y B U T L I M I T E D C H O I C E 50% OF NEW MALLS HAVE DELAYED their completion date by more than six months due to poor pre-leasing. Figure 11: Asia Pacific Retail Development Pipeline Wellington Adelaide Auckland Taipei Melbourne Jakarta Brisbane Hanoi Mumbai Perth Singapore Sydney New Delhi Tokyo Ho Chi Minh City Seoul Bangkok Beijing Hong Kong Guangzhou Shanghai Shenzhen 2017F 2018F 2019F Source: CBRE Research, January 2017. 0 5 10 15 20 25 30 35 Development Pipeline (million sq. ft.) 24
Auckland Sydney Melbourne Guangzhou Beijing Taipei Shanghai Brisbane Shenzhen Tokyo Hong Kong Singapore Retail rental growth (%) RETAIL SECTOR Figure 12: Asia Pacific Retail Rental Outlook 15 12 9 Peaking Close to bottom 6 3 0-3 -6-9 -12 2016F 2017F Remarks: Shopping centre rents for China and Singapore only, the rest is high street shops in core districts Source: CBRE Research, January 2017. R E N T A L G R O W T H S E T T O R E M A I N F L A T S H O P P I N G M A L L S A S E N T E R T A I N M E N T D E S T I N A T I O N S 3 CBRE Research (2014) Asia Pacific Consumer Survey How We Like To Shop 25
LOGISTICS SECTOR NICHE SECTORS TO TAKE OFF Logistics rents are expected to hold firm as regional trade is stabilising. In an era of low and slow growth, efficiency has taken on greater importance as companies seek to sustain profit margins, especially in the logistics industry. Manufacturers have to be more proactive in employing advanced technology in their portfolios to stay ahead of the competition. 4 Oxford Economics numbers; CBRE weighting of major APAC markets. 5 China, Japan, South Korea, Hong Kong, Singapore, Australia, and New Zealand 27
Shenzhen Auckland Shanghai Guangzhou Sydney Beijing Melbourne Brisbane Tokyo Bay Area Greater Osaka Perth Singapore Hong Kong Logistics rental growth (%) Greater Seoul Greater Tokyo Greater Osaka Shanghai Sydney Singapore Melbourne Brisbane Auckland Beijing Perth Shenzhen Guangzhou Hong Kong Million sq. ft. LOGISTICS SECTOR Figure 13: Asia Pacific Logistics Development Pipeline 35 Oversupply Risk Undersupply Risk 30 2017F 2018F 25 20 15 10 5 0 Source: CBRE Research, December 2016. M O R E B A L A N C E D S U P P L Y E X P E C T E D Figure 14: Asia Pacific Logistics Rental Outlook 12 Contraction Peaked 9 6 3 0-3 -6-9 2016 2017F Source: CBRE Research, December 2016. 28
US$ billion LOGISTICS SECTOR Figure 15: Transport Industry & Industrial REIT M&A Transaction Value by Target Company Region 40 35 30 25 20 15 10 5 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: S&P Capital IQ, December 2016. Asia Pacific P O R T F O L I O O P T I M I S A T I O N 6 US$ Historical Exchange Rate 29
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 LOGISTICS SECTOR Figure 16: Industrial robots per 10,000 persons employed in manufacturing Figure 17: Estimated annual supply of industrial robots ( 000) Low Level of automation High 300 South Korea Singapore Japan Germany Sweden Taiwan Denmark United States Belgium Italy China 250 200 150 100 50 0 0 100 200 300 400 500 600 Note: Industrial Robot as defined by ISO 8373 Source: International Federation of Robots, September 2016. Source: World Robotics, 2016. A U T O M A T I O N T O C H A N G E T H E L O G I S T I C S L A N D S C A P E 7 Industry 4.0 refers to the fourth Industrial Revolution that is occurring because of a digitally interconnected manufacturing process. The heart of Industry 4.0 is digitization and collaboration where everything is interconnected from company operations to product design to interaction with customers. The digitization of company operations will allow for a leaner supply chain where all the actors of the supply chain are sharing data in real time. The digitization of product design will allow for predictive maintenance procedures (products out in use will be digitally connected to detect any upcoming failures) and iterative production cycles (feedback from current models sold to customers can be improved upon immediately on the production line). The digitization of customer interaction can allow for products to be sold as a service as customers shift capital expenses to operating expenses. 30
LOGISTICS SECTOR N I C H E S E C T O R S Figure 18: Total Data Centre Workloads, Compound Annual Growth Rate (CAGR) between 2015-2020 30% 25% 20% 15% 10% 5% 0% APAC North America Western Europe Source: Cisco Global Cloud Index: Forecast and Methodology, 2015 2020. 8 Workload: A server workload is defined as a virtual or physical set of computer resources, including storage, that are assigned to run a specific application or provide computing services for one to many users. A workload is a general measurement used to describe many different applications, from a small lightweight SaaS application to a large computational private cloud database application. For the purposes of quantification, we consider each workload being equal to a virtual machine or a container. Source: Cisco Global Cloud Index, 2014-2019. 31
LOGISTICS SECTOR Figure 19: E-commerce sales as a percentage of total retail sales 40% 2015 2020 30% 20% 10% 0% APAC China South Korea Australia Japan Source: emarketer, December 2016. 9 Collaborative Urban Logistics Challenges, Current Practices and Future Research. Lau, Hoong Chuin. Singapore Management University. 32
CAPITAL MARKETS CREATIVITY VITAL TO UNLOCKING HIDDEN VALUE Investors will retain a strong appetite for real estate but activity is expected to moderate The yield compression cycle will be slower due to the narrowing yield spread Investors must formulate creative investment strategies to achieve target returns I N V E S T M E N T ACTIVITY SET TO M O D E R A T E 34
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F US$ billion Number of transactions CAPITAL MARKETS L O W Y I E L D S T O P E R S I S T Figure 20: Total Commercial Real Estate Investment Turnover in Asia Pacific 120 1,800 100 1,500 80 1,200 60 900 40 600 20 300 0 0 Q1 Q2 Q3 Q4 Forecast Number of transactions (RHS) Remarks: Transactions include deals above US$10 million in the office, retail, industrial, hotel, mixed and other commercial sectors. Residential and development site are excluded. Source: CBRE Research, RCA, January 2017. 35
Perth Brisbane Tokyo Auckland Melbourne Seoul Sydney Taipei Beijing Shanghai Guangzhou Singapore Hong Kong Shenzhen Office Yield Spread CAPITAL MARKETS Figure 21: 2017 Office yield spread forecast 6% Yield spread narrowed to 100 bps or below 4% 2% 0% Ten Year High 2017F Ten Year Low -2% Remarks: Office yield spread equals to difference between prime office yield and 10-year government bond yield Source: CBRE Research, Oxford Economics, January 2017. 36
CAPITAL MARKETS INVESTMENT OPPORTUNITIES C R E A T E A N D U N L O C K P R O P E R T Y V A L U E I N V E S T OUTSIDE G A T E W A Y C I T I E S 37
CAPITAL MARKETS C O N S I D E R N I C H E S E C T O R S 10 According to a Swiss Re sigma study 3/2016, aggregate non-life insurance premiums including health insurance in Asia grew by 137% to around US$406 billion between 2005 and 2015, a compound annual growth rate (CAGR) of 9%. 38
CONTACTS 39
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