Archive for May, 2012

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Clouded Value of Green Real Estate – India

Thursday, May 31st, 2012

The ever rising cost of energy and water along with the growing concern for the environment is gradually strengthening the need to develop green buildings. However, the concern over the additional capital cost and uncertainty over the return are the daunting the investment sentiments in green buildings. In empirical terms green buildings have been observed to be profitable ventures due to savings in energy and other operational costs. However, most of the benefits are intangible and cannot be translated in terms of cash flow which can be used to assess the value of the buildings or project viability. For example, better working conditions cannot be translated directly into money and so there is always the risk that the green aspects or the sustainability measures will be over or undervalued.

There are various methods of valuing buildings. But every method has its own challenges when it is used to value the green or sustainable aspect of a building. In the following discussion we will talk about the most popular methods of valuation such as the Direct Comparison Method, Rent Cap Method and Discounted Cash Flow (DCF) Method. If we want to use the direct comparison method to value a green building, the challenge is to find a similar building that has been transacted. If we value it against any conventional building the sustainable aspect of the building cannot be valued. If we consider the rent cap method of valuation, which uses the cap rate driven by market dynamics to find the value of a building based on total earned rents that drives the cap rate, it neglects the green aspects of the building. This method can only be successful in valuing a green building if the rent also reflects the sustainable aspects.

The discounted cash flow method, which is one of most accepted methods of valuation, considers the cash inflow and outflow. Thus, for a green building, the sustainable aspects of the building can be considered to a large extent in this method of valuation. There are few standard mechanisms to assess the energy savings and water savings of green buildings. However, DCF method has challenges of translating all benefits in terms of cash flows. For instance, there may not always be a rent premium for green buildings as rents in most cases are driven by demand-supply dynamics.

So there are many uncertainties regarding the valuation of green buildings due to lack of data and information. However, it is just a matter of time before change comes. The growing demand from occupiers, due to increased energy cost is putting pressure on developers to develop green buildings. The increase in numbers of green buildings will automatically increase awareness of them and as the market matures there will be benchmarks, comparables and databases to show the value of the green aspects of buildings. This will bring in more clarity and transparency in valuation of green buildings. Thus the investor’s confidence in green buildings will improve.

About the author
Trivita Roy is the Manager of Research and Real Estate Intelligence Service, for Jones Lang LaSalle in India, based in Hyderabad.

Posted in India, Sustainability | 1 Comment »

China: Is Bad News Good News Again?

Tuesday, May 29th, 2012

The China April economic data was almost universally bad and this has a lot of analysts suddenly very concerned that the long feared ‘hard landing’ is underway. Among our clients in China, the mood is decidedly less apocalyptic than in the Western media. From my perspective, it’s too soon to say if April was just a blip in the data or a portent of things to come.

The prevailing view on the ground seems to be that if the Chinese economy has in fact taken another leg down toward slower growth, with y-o-y GDP growth for 2Q12 potentially in the low 7s or even down into the 6s, there will be increased urgency for the government to undertake stimulative measures to boost growth. This is the ‘bad news is good news scenario’ where stimulus leads to stronger growth in the second half of the year.

I believe it is for this reason that we have not seen any of our clients putting their China plans on hold or turning more cautious about implementing their 2012 objectives. By clients I am referring to occupier clients – domestic and MNC companies in industries such as auto, pharma, hi-tech, FMCG, retail, and professional services, among others – as well as investor and developer clients. Groups with a stake in the ‘real’ economy who are trying to capture domestic market share in what are still fast growing industries.

In short, most of our clients are working with the view that either the economy is slowing quickly enough for the government to get serious about enacting stimulus or things aren’t as bad as the last batch of data suggest. And in either case, things won’t get much worse before they get decidedly better. Our base-case scenario for China in 2012 remains flat first half, stronger second half. The April data has not shaken our view on that forecast.

About the author
Michael Klibaner is the Head of Research for Jones Lang LaSalle in China, based in Shanghai.

Posted in China, Economic Research | No Comments »

The New Shenton, Singapore

Friday, May 25th, 2012

Shenton Way is undergoing an evolution. Once Singapore’s prime financial district in the 1980s, following the deregulation of the financial market in 2000 and the large inflow of global capital into Asia, Singapore emerged as a significant Asian financial hub and the centre of the financial market shifted to Raffles Place as newer, more prestigious buildings such as UOB Plaza and Republic Plaza were built.

By 2006, the completion of One Marina Boulevard and One Raffles Quay saw another shift towards the east and with the completion of the Marina Bay Financial Centre and Asia Square, the centre of the financial market will move to the New Downtown. With this shift comes a myriad of opportunities for the regeneration of Shenton Way.

Shenton Way is served by four MRT stations – two existing (Raffles Place and Tangong Pagar) and two future (Downtown and Telok Ayer). By 2013, developments in this area will not be more than 450 metres from a station, enhancing connectivity to the east of the island and the Marina Bay area, making it one of the best connected precincts in the CBD.

Already, we have seen several redevelopment attempts by private land owners. As the existing buildings are somewhat functionally obsolete, they no longer meet the operational requirements of today’s businesses. The only way for such buildings to compete is through regeneration or complete redevelopment.

There is strong rationale for such regeneration. Shenton Way is in many ways the confluence of old and new. To the north and north east is Raffles Place and the New Downtown – Marina Bay. To the east, Asia Square sits on what is largely reclaimed land and the mixed use concept here is creating a livelier neighborhood in contrast to one which deadens when business hours end.

To the south is the terminal, where there has been talk about relocation further up the western corridor when the lease expires in 20-30 years, opening up plentiful opportunities in the neighbourhood. To the west is the historically and culturally rich Tanjong Pagar which itself is undergoing transformation. The recent sale of a site to GuocoLand is the tip of the iceberg in creating a livelier area with more live in population.

The future of Shenton Way is likely take the form of a mixed district with residential and boutique office blocks serving largely low footprint companies, with high value added services. The development of new residential projects in the area is already well established, with projects such as One Shenton (Formerly Robina House), The Clift and Icon already completed, and upcoming projects including Altez, Eon Shenton and Robinson Suites proving popular with buyers, who see the potential of new homes in a regenerated area close to the CBD. Also in the pipeline are several retail concepts. We now have The Bank and Marina Bay Link Mall and the redevelopment of the former UIC building to high end residential, soon to be launched as “V on Shenton”, will help create a 24.7 buzz in the neighborhood.

About the author
Claire Gent is Singapore Research Manager for Jones Lang LaSalle.

Posted in Regeneration, Singapore | No Comments »

Leasehold Land In New Zealand

Thursday, May 24th, 2012

In the last few years in New Zealand, leasehold land has had a bit of negative press. A lot of this seems to be around residential developments on leasehold land where a review in ground rent seems to have taken some owners by surprise. It seems a lot of New Zealanders did not have a thorough understanding of leasehold property, unlike in other localities such as the UK, much of Europe and parts of Asia, where leasehold has been around for a while and is commonplace. New Zealanders have a bit of an obsession with freehold, not realising the many advantages there are to leasehold property, which allows them the opportunity to live and work somewhere they and their employer may not normally be able to afford.

Commercial investors, who tend to be more discerning and well informed than the typical residential purchaser when it comes to leasehold in New Zealand, have long recognised the advantages of developing, investing and occupying leasehold land. Much of the commercial office space along Auckland’s waterfront is leasehold, with large scale landowners having planned, developed and subdivided the land, then selling it off as leasehold parcels, making it more affordable than freehold. This large scale development has resulted in many well planned, attractive developments which make the most of their prime sites, with many situated in waterfront locations, affording office occupiers attractive sea views and excellent amenities. The office buildings tend to provide highly specified accommodation situated on well landscaped grounds with pleasant outdoor common areas, and are within close proximity to entertainment venues, restaurants, cafés and nightlife, which holds appeal for tenants and in turn employees who want to work there, ensuring good demand for the leasehold office accommodation in these localities.

From a residential perspective, one of the advantages of leasehold is it enables people to live somewhere they may not normally be able to afford, giving people the chance to live in stylish, modern and well-appointed apartments close to the CBD and vibrant waterfront. Certainly that is no truer than in the present, where an investor may be able to pick up an inner city leasehold apartment or even penthouse at a bargain price, capitalising on the negative press around residential leasehold property.

Over time the average New Zealander will become more accustomed to leasehold land. What the apparent uncertainty around some forms of leasehold does illustrate is the importance of good quality, professional advice. Jones Lang LaSalle were recently awarded ‘Best Property Consultancy’ in New Zealand for the second year running at the Asia Pacific Property Awards 2012, and are well positioned to provide in-depth, comprehensive advice should the need arise.

About the author
Claire Gulliver is the Assistant Manager, Real Estate Intelligence Service for Jones Lang LaSalle in Singapore.

Posted in Asia Pacific, New Zealand | No Comments »

The Private Investor – Currency Effects On Investment Returns In Asia Pacific Office Markets

Tuesday, May 22nd, 2012

Here in the Asia Pacific capital markets team we have been working on the next edition of The Private Investor. We have calculated the effects of currency movements on real estate returns, in ten Asia Pacific office markets for international investors, including those from the US, UK, and Euro area, as well as Japan, China, Australia and Singapore.

The growth of wealth in our region is high, with Asia Pacific growth continuing to outperform the rest of the world. As a result, we have seen an emergence of Asian private investors in the global real estate landscape who are increasingly choosing to invest in assets out of their own home country. We have developed The Private Investor series to speak directly to this group of investors and with the Euro area continuing to cause uncertainty in the global markets, currency is a timely topic.

There are a number of drivers behind where to buy real estate, as well as currency, diversification, wealth preservation and the attractive relative value of international opportunities all feature. One reason for investment in a particular city may be drivers such as familiarity through family ties and education. Wealthy Asian families are increasingly looking to secure an overseas education for their children and may buy property in that city.

Our first edition of The Private Investor looked at top ten potential investment destinations for Asia Pacific high networth investors based on a weighting of the number of international students and the size of the real estate investment market per city. Top of the ranking is London- highly attractive to Asian investors which has a large number of international students- followed closely by New York and Tokyo. The other cities that we have featured in the report include Singapore, Shanghai, Sydney and Melbourne, and outside Asia Pacific- LA, Toronto and Houston.

Our next edition looks at the effects of currency on the returns to real estate investment in office markets on a one year total return and annualised five year basis. Currency movements can make a significant effect on real estate returns. For example, the annualised five year total returns in Australian dollars in the Sydney office market gives 6%. Currency movements result in doubling returns to UK investors at 16%, whereas it halves returns for Japan yen investors at 3% when compared to local investors returns.

In Singapore, in local currency terms the annualised five year total return is 13%; in line with returns on the same basis to AUD denominated investors. USD investors would have received 16%, EUR investors 17% and GBP investors 20%. JPY investors would have received less at 8% on the same basis. If you were a Singaporean investor, which office market of the ten we featured would have given you the best return on a five year annualised basis? The top return for a Singapore investor a total return over five years annualised would have been Beijing at around 25%.

To find out more about how all seven selected currencies performed across ten Asia Pacific cities, the second Private Investor currencies edition will be out next month and a summary will appear in the Institutional Real Estate Newsletter in the June edition. If you would like a copy, please drop me an e mail. In the mean time log on here to see the first edition.

About the author
Dr Megan Walters is the Head of Research, Jones Lang LaSalle Asia Pacific Capital Markets.

Posted in Asia Pacific | No Comments »

What Makes China’s New CBDs Successful In The Long Term?

Monday, May 21st, 2012

Cities throughout China are in various stages of developing new Central Business Districts (CBDs), following the example set by the development of Shanghai’s Lujiazui in Pudong. We are constantly being asked by investors and developers to assess the development potential of these new CBDs, most of which are expecting to see a supply influx in the next two to three years. As illustrated below, many cities will witness a sharp increase in Grade A office stock in the next three years as they go through a new construction boom.


Source: Jones Lang LaSalle Real Estate Intelligence Service

Such a rapid pace of expansion is very likely to result in a temporary oversupply situation. However, by looking at some successful new CBDs, Lujiazui in Shanghai, SIP in Suzhou and Zhengdong New Town in Zhengzhou to name a few, we can see that oversupply in the short-to-medium-term is far from a deciding factor in the long-term success of a new CBD, which might take over 15-20 years to be able to compete with a traditional CBD. So what is common among these successful new CBDs? What essentially made them become what they are today? We believe that it is continuous government support and dedication to these new CBDs through the whole development history that separates the winners from the losers. Successful new CBDs were prioritised areas for local governments to develop and as such enjoyed the most preferential policies and the largest government capital and resource allocation in their cities.

What we have often seen in many cities is that local governments make sound plans for new CBDs and then, after only a few years, shift their priorities to create other new CBDs, and this is mostly due to changes in leadership at the local level. A good example of this is Taihu Square in Wuxi. In the tenth five-year plan (2001-2005), Taihu Square in Nanchang District was designated as the only new CBD in Wuxi. However, starting with the 11th five-year period (2006-2010), Taihu New Town in Binhu District was named the new CBD of Wuxi and subsequently received the city’s priority for development. As a result, there was a significant slowdown in the development of Taihu Square in recent years with new projects being built at a very slow pace.

Generally speaking, there are many factors which drive a new CBD to be successful in the long run, including location, developer profile, infrastructure, accessibility, market forces, etc. In our opinion, the government’s long-term commitment to the development of a new CBD is one of the most important deciding factors for its long-term success.

About the author
Joe Zhou is the Head of Research for Jones Lang LaSalle in Shanghai.

Posted in China, Urban Development | No Comments »

Revitalising Bangkok’s Riverfront

Friday, May 18th, 2012

Given the wide network of canals and waterways that run through the city, Bangkok’s Chaophraya riverfront has historically played a significant role in the development of the city since its establishment as the capital in 1782. Transportation, commerce, government, tourism and education have all evolved along its river banks, but as the city modernised, the river and canal system gradually gave way to modern roads and mass transit infrastructure, which new development has followed. Although activity over the past few decades has generally moved away from the river, its continued role as a transportation artery and its natural endowments have brought renewed interest, with redevelopment starting to emerge along the river banks.

Certain landmarks along the river, like the Oriental Hotel established in the late 1800’s, and temples, have maintained their utility, charm and relevance. Other buildings have not stood the test of time so well, with many being demolished for new projects and as a result, high density residential developments have risen on both sides of the river near the Saphan Taksin bridge, where the BTS skytrain crosses to the Thonburi side. The riverside area now accounts for 10% of the total stock of condominium units in central Bangkok. Vacant land has also attracted new hotel and residential developments on the western bank which offer impressive views of central Bangkok’s evolving sky-line. River buses, cross-river ferries and water taxis offer quaint, but efficient transport from, across and along the river, feeding into the modern BTS skytrain system. The Bus Rapid Transport provides mass transport via dedicated bus lanes on Rama 3 Road and Ratchadapisek Road which follow and cross the river at Krungthep Bridge. In an increasingly congested city, these river developments offer a more open and natural environment.

Particularly in the core areas, where riverfront land is becoming increasingly scarce, we are seeing a new wave of modern redevelopment. A prime example of this is the new Asiatique retail complex on Charoen Krung Road. Developed in the early 1900s by the East Asiatic Company Ltd, the site originally housed warehouses and wharves dedicated to the import-export trade, but after lying idle for many years, the site has been brought back to life as a modern shopping centre, equipped with dining, entertainment and other facilities. The design and renovation retain the original feel, and allow both locals and tourists alike the chance to experience a unique riverside atmosphere. River City, renowned as one of the best places in Bangkok to buy antiques, has recently undergone a facelift and there are plans to bring the historic General Post Office (GPO) on Charoen Krung Road back to its former glory through restoration and an adaptive re-use as a mixed-use development.

As Bangkok continues to evolve, many areas across the city are witnessing new patterns of development. Given its history, natural endowments and improving infrastructure we are likely to see a re-birth of the importance of Bangkok’s riverfront, as the area recaptures its former prominent role in the capital’s skyline.

About the author
Dan Tantisunthorn is the Head of Research for Jones Lang LaSalle in Thailand.

Posted in Land Supply, Residential Research, Retail Research, Thailand, Urban Development | No Comments »

Project Development – Room For The Unknown

Thursday, May 17th, 2012

There are a few rather pertinent questions in each developer’s mind before initiating a new commercial project. The overall market sentiment that governs demand and leasing activity is not the only harbinger of risk that developers must consider. Perceptibly, the site location to be acquired for project development is a vital aspect due to the fact that its spatial proximity to other sites will have an impact on the cost of doing business for tenants and/or the demand for the product/services that the tenants are selling. When a developer acquires a site, the cost of acquisition is a significant determinant of the quality of the building. Generally, as the cost of the acquired site increases, the building will be of a higher quality and will cost more to develop. Furthermore, as the price of the land increases, the site is likely to be more densely developed. These fundamental economic connotations partially explain why certain areas of cities are more densely developed with high rise office buildings whereas other areas are less densely developed with warehouses etc., for instance, on relatively low-cost suburban/ agricultural land.

A basket of chief components based on which quality and cost can be differentiated include – facade, quality of interior layout coupled with functionality, accessibility from site in terms of transportation etc., other amenities such as dining and wellness centres, landscaping, parking, common areas, quality of air conditioning (HVAC) and exterior finish (granite, wood etc.) Now, there is always a level of uncertainty as to how the quantity/quality of services provided should be packaged to meet potential demand. As such, there is always a latent source of project risk. It must be borne in mind that not all new projects are initially constructed as “class A” space, which is supplemented with higher quality interior, exterior and mechanical components. In the ultimate analysis, investors must screen the demand for space in terms of the characteristics of the demand by end-users for a given market. This demand, in turn, is a function of the nature of employment in the given local market. It is only with an acute understanding of the local economy and the nature of employment that the developer anticipates demand as accurately as possible and supplies the quantity and quality of space in the suitable combination to satisfy market demand. However, as important as the above is, it is equally important to be mindful of the fact that there are a host of other factors upon which rests the eventual success of a project. The developer always has to leave some room for the unknown – for even with meticulous planning things might not always go as planned.

Therefore,

“Don’t expect to find the trick of the trade in a book…. Learn the basics, accept a degree of risk and then get out and do it.” – Kendra Todd, winner of Season 3, The Apprentice

About the author
Ankita Satnaliwala is the Senior Analyst, Research and Real Estate Intelligence Service for Jones Lang LaSalle in India, based in Kolkata.

Posted in Investment Research | 1 Comment »

Beijing Retail Developing Along With The Subway System

Tuesday, May 15th, 2012

While shopping in Tokyo and Hong Kong around ten years ago I was impressed by the advanced subway systems which provided very good connections to each retail catchment area. Now I notice this trend emerging in Beijing as well.

In the past ten years the Beijing subway system has developed from two lines to 13, covering a distance of more than 350 km. Another 17 lines are under construction, all of which are scheduled to be completed by the end of 2015. The early, traditional retail catchments, namely Wangfujing and Xidan, are located along the city’s first subway line, Line 1, and are at interchange stations, which increases the number of potential visitors to the shopping malls.

After the 2008 Olympic Games, several high-end shopping centres, including Shin-Kong Place and Seasons Place, opened near subway stations. This showed that developers had begun to focus their attention on the location of subway stations through which millions of people pass every day. Thus, the most important emerging retail catchment areas are all near transfer stations where two or three subway lines converge, such as Dongzhimen and Xizhimen. Institutional investors have already begun to invest and develop in these areas.

In the future, shopping malls will continue to open along subway lines, such as Lines 1, 2, 4, 5, and 10. With more and more large scale residential projects being built along subway routes in Beijing’s suburbs, shopping centre investors are confident about the consumer potential in such suburban areas. On studying the market it is clear that high-end shopping centres will focus on the city centre, and mid-range projects will occupy space near or above suburban subway stations.

About the author
Meggie Qin is the Head of Research for Jones Lang LaSalle in Beijing.

Posted in China, Retail Research | No Comments »

Neighbourhood Centres In Australia – Growing Investor Demand

Monday, May 14th, 2012

Given the weak retail environment in Australia over the past few years, where consumer sentiment has been low and retail turnover has been subdued, an increasing number of investors have been focused on purchasing retail assets with high levels of exposure to non-discretionary categories of spending, such as food. In Australia, these assets are typically neighbourhood shopping centres. Strong investor demand for these assets was evident over the 12 months to March 2012. Over this period, 51 neighbourhood centres exchanged across Australia, compared with the 36 centres recorded in the 12 months prior and 43 in the twelve months immediately prior to the Global Financial Crisis at the end of 2007.

What constitutes as a good neighbourhood centre?
Neighbourhood centres are characteristically enclosed centres located in suburban residential areas that comprise at least one supermarket and specialty stores. The features that investors seek in prime quality neighbourhood centres are:

• Good location with strong population catchment;
• Efficient design;
• A strong performing full-line supermarket; and
• Limited competition in close vicinity.

In the current weak retail spending environment, neighbourhood centres with a higher level of vacancy are frequently those with a higher number of specialty shops. Neighbourhood centres with less than 15 specialty shops have the lowest level of vacancy. This low vacancy often reflects the tenancy mix, which may be mostly composed of non-discretionary tenants (for example, newsagencies, butchers and bakeries) that complement the supermarket. As the number of specialty shops increases, the tenancy mix tends to include discretionary tenants and this is where higher level of vacancies are recorded.

The robust investor demand for prime quality neighbourhood centres has resulted in equivalent yields at the upper end of the range remaining firm over the past two years in Australia. Conversely, rising vacancy in secondary neighbourhood centres and difficult access to finance for these assets has seen yields at the lower end of the range gradually soften. While this trend is happening in most monitored markets, the exception to this case is Melbourne. In this market, a deep buyer pool of private investors has caused the lower end to progressively tighten.

About the author
Anita Tang is a Research Analyst for Jones Lang LaSalle, based in Sydney, Australia.

Posted in Australia, Retail Research | No Comments »

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