Archive for June, 2012

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New Zealand Ranks Number 1 In Transaction Process

Friday, June 29th, 2012

Investors in New Zealand real estate can rest easy knowing that when they undertake a transaction the process is rated a global best, according to a recent transparency survey by Jones Lang LaSalle.

Yes, according to the latest Global Real Estate Transparency Index (GRETI) New Zealand ranks 1st for its Transaction Process out of 97 markets worldwide. GRETI is a joint initiative with LaSalle Investment Management. The Index is a unique survey updated every two years and the 2012 edition represents the seventh edition. The Index is widely recognised as the benchmark of real estate transparency.

So, what are some of the factors that separate New Zealand from the other markets?

In terms of the actual sales transaction, New Zealand’s quality and availability of pre-sale information, fairness and confidentiality of the bidding process and professional and ethical standards of the property agents are considered second to none.

These three factors are increasingly important in a world that is coming to grips with the necessity of transparency for all transactions.

In New Zealand there is a variety of sources to obtain property sales information through government, corporate and private avenues. This is similar to many developed nations. However, one factor that separates New Zealand is the extended time period and robustness of continuous data recorded across most forms of commercial and residential real estate.

An example of this type of data provision consolidated into one easy format is Jones Lang LaSalle’s Real Estate Intelligence Service (REIS). This comprehensive market research document provides physical and financial metrics over the last two decades.  The access to this type of information in tandem with complementary market research and bespoke consultancy services enables investors to make a well-informed transaction decision.

As the GRETI identifies, adding to the transparency of the transaction process is the professional and ethical standards of property agents. Their actions, up-skilling and monitoring are continually assessed by the Real Estate Agents Authority (REAA). There are also other official bodies which enable investors to bid for any asset knowing that the process is fair and confidential.

The global flow of capital is progressively reaching destinations from one side of the world to the other searching for prosperous and transparent markets. We are increasingly seeing global investors investigate and purchase assets in New Zealand. There was approximately NZ$290m transactions in 2010 from foreign investors compared to NZ$550m in 2011. The latest survey findings add support and are a testament to New Zealand’s attractiveness as an investment destination.

For more information on GRETI the REIS and how Jones Lang LaSalle can assist with your next transaction in New Zealand visit us at www.joneslanglasalle.co.nz.

About the author
Chris Dibble is Associate Director of Research and Consulting for Jones Lang LaSalle in New Zealand.

Posted in New Zealand, Transparency Research | No Comments »

Take the Real Estate Transparency Quiz

Thursday, June 28th, 2012

We’ve just released the findings of our 2012 Global Real Estate Transparency Survey. In this survey, we examine real estate transparency levels in about 100 markets worldwide. The transparency score for each market is based on results for 5 different categories – real estate performance measurement, availability of data on market fundamentals, governance of listed vehicles, regulatory and legal frameworks, and the transaction process.

In the Asia Pacific region, we analysed real estate transparency for 16 markets: Australia, China, Hong Kong, India, Indonesia, Japan, Macau, Malaysia, Mongolia, New Zealand, the Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.

What are some of the key results for Asia Pacific? Take this quick quiz to find out (answers below):

  1. What is the most transparent real estate market in Asia Pacific?
  2. What is the least transparent real estate market in Asia Pacific?
  3. Which is the biggest improver since our last survey in 2010?
  4. Which major market has low transparency relative to its economic maturity?
  5. Which country has improved more over the last two years in terms of its global ranking, China or India?
  6. Which city has improved more over the last two years in terms of its global ranking, Singapore or Hong Kong?
  7. Asia Pacific outperforms the global average for 4 out of the 5 categories above. Which of these 4 categories is the biggest outperformer?
  8. For which of the 5 categories above does Asia Pacific underperform compared to the global average?

You can find all the details on our new interactive transparency website (www.joneslanglasalle.com/Transparency). Happy viewing!

Answers:

  1. Australia
  2. Mongolia
  3. Indonesia
  4. Japan
  5. China
  6. Hong Kong
  7. Market fundamentals
  8. Transaction process

About the author
Dr Jane Murray is the Head of Research, Jones Lang LaSalle Asia Pacific.

Posted in Asia Pacific, Asia Pacific Economy and Property Markets | No Comments »

Flight to Quality – A Present Trend In Indian Retail Sector

Monday, June 25th, 2012

For approximately two to three years, we have seen the demand of India’s organised retail sector become polarised. This means that selected malls, which are strategically located with good connectivity and catchment, are attracting more retailers and performing well, while the malls with poor locations and management are operating with high vacancies. This trend can be attributed to the following:

1. Economic Slowdown: During the boom of 2005-07, there were few malls operating in the country and everyone, including retailers and consumers were bullish. This is possibly the reason that all malls, irrespective of their locations, were performing well. With the economic slowdown in 2008, retail sales declined, and retailers became cautious about their expansion plans, causing the demand to become polarised in favour of quality malls.

2. Effective Mall Management Practices in Newer Malls: The adoption of superior mall management practices in most of the recently completed malls has attracted increased retailer interest compared to the older malls with poor or no mall management practices.

3. New Design/Structure: Recently built malls look elegant compared to many old malls in the major metropolitan cities of India. The new malls are provided with all the modern amenities with sufficient car parks along with an appropriate distribution of anchor versus small format stores.

4. Optimal Tenant Mix: Modern malls have an optimal tenant mix from various categories, which attracts more retailers.

5. Lack of sufficient quality malls: There is not enough quality supply in the cities, causing the polarisation in demand as select retailers are forced to operate out of poorer malls.

All of the above-mentioned factors have contributed to the concentration of retailers’ demand for quality malls, despite the retailers needing to pay a premium. Retailers feel there is more risk in operating out of a poor mall than paying a premium and operating out of a high quality mall. The trend of polarisation of retail demand, primarily in Mumbai and NCR-Delhi, is likely to persist in the current market as there are not many quality completions expected in the near to medium term. Rather, it is largely felt that at some point some of these poorly performing malls will be converted to office space, while a select few of them are expected to be redeveloped into better malls or residential towers.

As a result of the limited supply of superior-grade retail malls in the mature cities of India, retailers have begun exploring for quality space in high streets and even in stand-alone commercial properties and mixed-use developments in established locations.

Retailers today have learned from their past mistakes stemming from unplanned growth and are now focused on expanding only through malls that are backed by desirable attributes such as good locations, lease-only models, experienced developer profiles, professional mall management teams and active tenant-mix management, which all lead to healthy foot falls as well as decent conversion ratios. While the demand for a superior shopping experience is evident in the established metropolitan cities, the sector will see long-term growth in Tier II and Tier III cities, which offer immense untapped potential.

About the author
Subash Bhola is the Senior Manager, Research for Jones Lang LaSalle in India, based in Mumbai.

Posted in India, Retail Research | No Comments »

The Rise Of Chinese Firms

Friday, June 22nd, 2012

The 2008 global financial crisis brought much of the global economy to its knees and repercussions continue to play out till this date. Yet against such a challenging backdrop, annual net demand for Grade A office space across the twenty cities that we track in China recorded astounding growth from just 1.4 million sqm in 2009 to 4.3 million sqm in 2011. Nowhere is the explosion in Grade A office demand more obvious than in Beijing, where record high net absorption brought the vacancy rate from 28.1% in 2009 down to just 9.1% by the end of 2011.

One factor that contributed to the Grade A office demand expansion is the government’s persistent efforts in developing the financial sector. Hardly a month goes by without hearing of fresh developments in the sector and new areas of businesses opening up. Even for existing policies such as QFII and QDII, continued expansion of the schemes means that the pie is enlarging, which translates into increased business volumes and more demand for quality office space.

What is more interesting, however, is the coincident trend of domestic firms’ increasing demand for Grade A space. Although the data is patchy, we can get a feel of how this trend has likely developed by looking at the pie charts below. Both buildings are in the same location and are good representations of top quality office space during their respective dates of completion. In both cases, we were also the sole leasing agent and the contrast in proportion of domestic presence pre- and post-financial crisis is stark.

Thanks to the financial crisis, Chinese companies have seized the opportunity to acquire foreign companies for various reasons including attractive valuations, access to resources, technologies or new markets. They are also getting more competitive at home as revealed by a recent survey conducted by China Europe International Business School (CEIBS). Competition from Chinese firms now ranks as the second biggest challenge to foreign enterprises in China. The rise in the aspirations of domestic companies has influenced how they want to be perceived, including the type of office space they occupy. Image aside, they are also giving more attention to the additional competitive edge gained from operating within a conducive environment, such as staff attraction and retention as well as improved productivity. All this would result in domestic firms being an ever more important source of demand for Grade A office space going forward.

About the author
Mark Ho is the Local Director for Jones Lang LaSalle in Beijing.

Posted in China, Office Research | No Comments »

The Impact Of Saleable Floor Areas On Residential Prices

Tuesday, June 19th, 2012

In an effort to safeguard the interest of buyers, the Hong Kong Estate Agents Authority recently released a set of practice guidelines to improve the information on floor areas for second-hand residential properties. Effective by end-2012, under the guidelines, real estate agents will be required to provide the saleable floor area of a unit in all marketing materials associated with it. By definition, the saleable floor area is smaller than the often-quoted gross floor area, as it excludes common areas such as lobbies, clubhouses and public corridors.

Quoting the saleable floor area will help clear away some of the uncertainties faced by buyers, though it may also, at least initially, lead to weaker sales volumes. With residential prices currently near record highs, quoting smaller floor areas and higher unit prices (based on saleable floor area) could have a negative psychological impact on buyers.

Reduced volumes, however, are unlikely to have a major impact on prices. Under the current low interest rate environment, sluggish volumes have not translated into lower prices. On the contrary, we believe that the introduction of the new floor area guidelines may lead to prices in the secondary market rising. This is because buyers will likely compete for the few properties available in the market with relatively high efficiency ratios (the ratio between saleable and gross floor area), thus driving up their prices. In turn, this activity will probably set new benchmarks for the market as a whole.

Against this backdrop, we do not expect the provision of saleable floor areas to have any significant negative impact on the market.

About the author
Denis Ma is the Local Director for Jones Lang LaSalle in Greater Pearl River Delta, based in Hong Kong.

Posted in Hong Kong, Residential Research | No Comments »

From Cost Center To Strategic Asset, CRE In 2020

Monday, June 18th, 2012

By the year 2020, employees considered ‘digital natives’ will be served by a super nucleus of real estate, human resources and technology services, while sophisticated data platforms will transform real estate portfolio optimisation, strategic planning and workplace management alike. These are some of the findings of the CoreNet Global “Corporate Real Estate 2020: The Future of Corporate Real Estate and the Workplace”, a synthesis of view points from the top thinkers and strategists of the corporate real estate (CRE) world.

“The evolving transformation of CRE from cost centre to strategic asset comes alive in this research,” explains Jones Lang LaSalle Russ Howell, one of the project leaders. “Portfolio optimisation improvements and a renewed focus on using productivity and innovation-driven workplace strategies will be leveraged more frequently by corporations to achieve competitive success in the Year 2020. The C-Suite will increasingly turn to the CRE function as key strategic partners and stewards of the physical platform, to drive widespread transformation and total value creation.”

Other bold statements from this transformative research project include:

  • • Workplace: CRE professionals will evolve to “experience managers” offering employees an à-la-carte workplace experience with a menu of services, location and support.
  • • Technology: CRE strategy now includes “goodwill assets” that include third places (e.g. home offices and coffee shops) in supporting diversified workplaces that increase productivity, recognising the value of the worker ecosystem.
  • • Service delivery and outsourcing: (Big) data usage will become more widespread as a means of setting CRE strategy with companies maintaining control of data, but vendors taking a more active role in the management of that data stream.
  • • Portfolio optimisation: Significant progress will be made in developing a set of tools to achieve financial optimisation of the global portfolio in collaboration with corporate treasury, finance and taxation functions.
  • • Location strategy and the role of place: Supply-chain/logistics (including business continuity and disaster risk) will exert a dominant influence over industrial location strategy.
  • • Sustainability: Sustainability advocates, CRE teams will take on initiatives to positively change personal behaviour and standards surrounding sustainability.
  • • Enterprise leadership: CRE heads will be empowered as external and internal agents of change, brand managers, customer managers and productivity champions.

A good read for CRE executives as their role becomes ever more strategic.

About the author
Anne Thoraval is the Head of Corporate Research for Jones Lang LaSalle in APAC, based in Singapore.

Posted in Asia Pacific, Corporate Real Estate | No Comments »

Will Australian Property Yields Follow Bond Yields Down?

Friday, June 15th, 2012

The recent rise in investor risk aversion has pushed the Australian Government 10-year bond yield to 2.98% (12-June) – a rate not recorded since the 1940s. Valuations are determined in relation to a risk-free rate. As a result, low treasury yields are making commercial property appear very attractive on conventional pricing models. The spread between the Sydney CBD prime-grade office yield and the real risk-free rate is 609 basis points – the widest spread on record.

In North America and Western Europe, property yields followed bond yields down in 2010. The 10-year average prime-grade yield is 5.60% in New York and 6.60% in the Sydney CBD. The bulk of the yield differential (85 basis points) can be explained by the lower real risk-free rate in the US. The average for the 10-year Treasury Inflation Protected bonds (TIPS) in the US is 2.00%, while the Australian inflation-indexed bond rate is 2.85%.

At the moment, the average prime-grade yield in New York is 4.30%, 258 basis points tighter than the Sydney CBD at 6.88%. The real risk-free rate is 130 basis points higher in Australia (0.80%) than the US (-0.50%). There is, however, a 130 basis points spread unexplained by the real risk-free rate.

A higher spread could be explained by the space market fundamentals. At a glance, however, the conditions look broadly comparable. Vacancy is line with the long-term average in Sydney (8.7%) and New York (10.5%). While the demand environment is challenging, there is limited risk of an over-supply. Ironically, the development pipeline in both markets equates to 1.8% of total stock.

A number of Australian funds (listed and unlisted) have looked to reduce their offshore exposure and focus on growing their domestic portfolio. For domestic fund managers, the cost of capital is more important than arbitrage opportunities between global markets.

The Weighted Average Cost of Capital (WACC) is calculated by the cost of equity (multiplied by the proportion of equity used) plus the cost of debt (multiplied by the proportion of debt used). We have calculated the cost of equity at 10% for a domestic investor seeking a prime-grade asset in the Sydney CBD. The cost of debt has fallen significantly over the past 12 months. As an illustration, the Reserve Bank of Australia reported that the BBB-rated corporate bond yield (with a 1-5 year maturity) was 5.90% in May-2012 – 151 basis points lower than May-2011.

Assume that a domestic investor will use leverage of 30%. The WACC has, therefore, fallen by 45 basis points to 8.77% over the 12 months to May-2012. Jones Lang LaSalle Research projects that Sydney CBD prime-grade assets will deliver an IRR of 10.7% between 2011 and 2014.

Jones Lang LaSalle does not forecast a significant yield compression cycle in Australia. However, the prospect of treasury yields staying lower for longer and a lower cost of capital will increase competition between offshore and domestic investors. This provides a framework for property yields in Australia to tighten against treasury yields over the next 12-18 months.

About the author
Andrew Ballantyne is a Director for Jones Lang LaSalle in Australia, based in Sydney.

Posted in Australia, Capital Markets, Investment Research | No Comments »

Of Shoeboxes And Others

Thursday, June 14th, 2012

Shoe boxes have been the talk of the town in Singapore. The recent issue that social and print media have been ranting about is whether the government should control the size of these tiny apartments. With the recent spike in smaller units sold, Singaporeans have been concerned over the proliferation of this trend across the rest of the market. The arguments range from the erosion of family values as it encourages single family households rather than the extended family, to the humanity of living in such a small space.

The concept of shoeboxes came about from the basic economic driver of demand and supply. Average island-wide prices of apartments increased by 50.2% between 1Q09 and 4Q11, while average land prices for residential projects also increased from SGD 121 million in 2010 to SGD 247 million in 2011 (based on recent government land sales). These were all fueled in part by the low rate of housing stock growth in contrast to a much bigger growth in the immigrant and expatriate population. Coupled with two years of supply drought in the public housing market as a result of the Build to Order scheme, alongside the high global liquidity and low domestic interest rates, the environment was ripe for an asset price spike.

The private market responded to this demand and price hike by cutting back unit sizes to make private units more affordable for first time homebuyers. However, the citizenry is afraid that this trend of shrinking apartment size, if not contained, would rob them of the quality of living space and hence are calling for the state to intervene.

In my opinion, there is no need for the state to interfere. Firstly, the size of this market is relatively small. The supply of shoebox developments is currently estimated to be just 2,500 units or 1.2% of total existing stock, and forecast to reach between 8,200 and 9,700 units by end-2015. These small unit sizes also encourage housing mobility as they give young couples the chance to participate in the asset growth cycle early, allowing them to build up their capital and subsequently upgrade to other housing types. Being a city state implies Singapore must not only provide homes and jobs but all other supporting national needs within the urban space e.g. water catchment, military, airports, recreational etc. As prices increase, naturally the size has to drop. We have seen a similar situation happening in New York and Tokyo, where apartment sizes are even smaller than those in Singapore. We have to allow the market to respond to this need by allowing developers to supply smaller units to meet the changing needs of the populace. Finally unlike other global cities like New York, London and Hong Kong where there is a hinterland where residents can escape to when home prices become unaffordable, Singaporeans do not have that luxury. The state could tap into the creativity of the private market to ensure that homes remain decently affordable.

About the author
Yang Liang Chua is Head of Research for Singapore and South East Asia at Jones Lang LaSalle.

Posted in Singapore, Urban Issues | 1 Comment »

Pune’s Changing Industrial Landscape And Its Impact On Real Estate

Wednesday, June 13th, 2012

Would anybody have ever imagined that a place known for its soothing weather, tranquility and as being the cultural capital of India would also become known for its large contribution to India’s growth story? Perhaps not. Although industrial development dates back to the 1960s when mechanical engineering units set up their bases in and around Pune, the economy didn’t really begin to open up until the early ‘90s with the advent of LPG policies (Liberalisation, Privatisation, and Globalisation). When this was coupled with the availability of a humongous pool of energetic and talented employees supplied by the various local educational institutes the city grew at a rapid pace. What makes Pune so attractive and popular is its blend of cosmopolitan culture, good weather, proximity to the business capital, and its slower and quieter pace. The city has also gained popularity as a second-home or weekend-home for industrial tycoons and celebrities as it is not too far away from Mumbai to be inconvenient. As one of the three vertices of the GOLDEN TRIANGLE PROJECT Pune has witnessed an enormous influx of investment and new industries and the creation of huge numbers of jobs across all sectors. This has helped the city establish itself on the map as one of the most preferred locations in India for many giant international companies.

Industrial development has been the major economic driver for Pune for a long time, and over the recent years several companies from other sectors have established themselves in the city so that it is now also known for IT / ITeS, pharmaceutical and biotechnology businesses.

The year of global turmoil, 2009, saw a steep spike in operational costs in many countries and it made sense for companies to invest in places where labour costs were lower. This led to the emergence in Pune of new industries with the city attracting automobile giants such as Volkswagen and General Motors which both established manufacturing units in the Chakan area.

Once the LPG policy came into effect, a number of local as well as MNCs set out to attract the best talent they could find by offering handsome salaries and remuneration and this sudden spurt in income and improved lifestyle caused the recipients to look around for investment vehicles. One of the most lucrative of these for the last decade has been real estate, both commercial and residential. The emergence of the industrial sector in the city has increased real estate activity in the city, particularly in the fringe areas, but the majority of the developments there target middle-income earners.

As we all know, there is a direct correlation between industrial development and real estate growth and hence areas such as Pimpri-Chinchwad, Talegaon and the Chakan belt, Sanaswadi, Pirangut, Shirwal and Ranjangaon, where a variety of goods such as commercial vehicles, locomotives, electronic consumer durables, pharmaceuticals and a number of intermediate goods, are manufactured and assembled have seen unprecedented real estate development. Other factors have been a stable real estate market and realistic prices.

What we have seen in terms of growth and development is just a tip of the iceberg, promising more than what it has offered until now. Also, real estate growth needs to be supported by local, state-level and central government policies along with a huge investment in infrastructure. Hence, it is pertinent to mention the last stanza of a poem by Robert Frost titled “Stopping by Woods on a Snowy Evening” which I like very much.

The woods are lovely, dark and deep
But I have promises to keep
And miles to go before I sleep,
And miles to go before I sleep.

About the author
Alok Jha is the Assistant Manager for Jones Lang LaSalle in India, based in Pune.

Posted in India, Industrial Research | No Comments »

Is Uncertainty A Bad Thing?

Tuesday, June 12th, 2012

At the start of this year it looked like the world had seen the worst of the Euro woes, and we here in Asia Pacific could stop peering over our shoulders. Alas, of late the spectre is back on the radar, and the only thing the markets like less than bad news is uncertainty.

We’ve already seen bailouts for Portugal, Ireland and Greece, so it was no surprise that the next worry was, “what do we do with Spain?” As the fifth largest economy in Europe and the fourth largest in the Eurozone, the markets were quick to experience a brief rebound in Asia Pacific on the back of an announcement of a rescue package of Euro100 billion from the EU rescue funds to recapitalise Spain’s banks.

So what’s next? Well, there’s never a dull moment these days in the global economy. The next round of Greek elections on the 17th of June could well spell the start of an abrupt end to the single currency in one country at least, and what the knock on effect of this would be on the rest of the world, nobody can be sure.

We really do operate in a global world and what’s interesting from my side is how this uncertainty in Europe translates into opportunities for me in my interactions with our Real Estate Intelligence Service (REIS) clients and potential clients here in Asia Pacific. In the last couple of quarters I’ve seen much more in the way of enquiries to purchase our services from new clients. These enquiries come from two categories; large international investors and operators already invested in AP who are looking to get access to better data to improve their benchmarking and their due diligence; secondly from international firms looking to enter or expand in Asia Pacific to enable them to harness the stronger growth and opportunities present here. Greece in the Euro or no Greece in the Euro, there’s no getting away from the fact that economic growth in the Asia Pacific is likely to far outstrip growth else where in the world, and most likely the growth rate will be more than double.

Real estate investing is a local game, you need to be in touch with what’s happening on the ground in real time to ensure you have the best knowledge at your fingertips. This is where we’re working harder for our clients than ever, linking them with our team of more than 120 real estate market experts on the ground in local markets from Canberra to Chongqing and Hyderabad to Hong Kong.

There are certainly plenty of opportunities out there in Asia Pacific for real estate investors at the moment, be they core or opportunistic. Even markets such as China and Japan, the second and third largest economies in the world will not be immune if Greece exits the Euro, however, the picture here is still likely to remain rosier than across the water in Europe. Whatever the outlook for the Euro, we will be here helping our clients every step of the way, keeping them abreast of the risks and opportunities here in Asia Pacific.

To find out more about subscribing to our Real Estate Intelligence Service, please do not hesitate to contact me at roddy.allan@ap.jll.com.

About the author
Roddy Allan is a Director, Asia Pacific Research for Jones Lang LaSalle, based in Hong Kong.

Posted in Asia Pacific, Economic Research, Investment Research, Real Estate Research | No Comments »

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