Archive for the ‘Asia Pacific’ Category

Manufacturing A Solution To Beijing’s Warehouse Shortage

Thursday, December 5th, 2013

There is a long list of investors eager to increase the size of their China warehouse portfolio. In November, Prologis and HIP China Logistics (HIP) increased their committed capital to over USD 1 billion after announcing a joint venture. Carlyle Group announced a similar joint venture in August. As one of the most undersupplied markets in China, Beijing will likely continue to receive close attention from these and other investors. Some companies have stated that they intend to both construct and acquire logistics warehouses to grow the size of their China portfolio. However, there may be a more creative alternative that could appeal to warehouse developers.

The sale of logistics space in Beijing has been quite rare over the past few years as most landlords have been content to hold their properties and collect income from recent rental increases. Meanwhile, the price of developable land within the sixth ring road has increased to the point where it is prohibitive for warehouse use. Moreover, the number of land plots sold outside the sixth ring road has been scarce. As such, most new logistics developments servicing the Beijing market have been located outside of the city’s borders.

While large e-commerce and third-party logistics firms have quickly absorbed these high-quality warehouses, smaller firms cannot afford the increased transportation costs associated with locating outside of Beijing. Other firms must locate in Beijing to remain close to their customers, e.g. to facilitate shorter drive times. Thus many companies have had to settle for low quality warehouses which lack modern building specifications such as fire suppression sprinklers. Plans to redevelop some of these warehouse clusters as commercial areas have been put on hold partly because reducing the overall stock of warehouses could disrupt the distribution of goods within Beijing.

One solution to this problem could be vacant factories. The rising cost of labour and improvements to pollution controls have forced some manufacturers to move out of Beijing proper. Provided logistics development is consistent with town planning intentions in these areas, some vacant factories in more remote locations such as Changping District or Tongzhou District could be sold to warehouse developers. Constructing high-quality warehouses with ancillary office spaces at such sites would stimulate the local economy. Occupiers would register their business in the district and locate some of their business operations on site, creating jobs and generating more taxable income than pure warehouse spaces. Redeveloping factories as warehouses would provide some relief to tenants in this supply constrained market, facilitate the redevelopment of agricultural warehouse clusters and offer investors an additional channel to increase exposure to the Beijing warehouse market.

About the author
Chris Clausen is Senior Analyst in Jones Lang LaSalle’s research team in China, based in Beijing.

CRE Teams Look To Health And Safety For Productivity Gains

Friday, November 22nd, 2013

Earlier this month, the second annual Jones Lang LaSalle Safety Week took place, involving 8,000 contractors and client representatives in a variety of workshops and other activities. This Asia Pacific-wide campaign was focused on promoting the importance of strong health and safety (H&S) behaviour in the workplace.

There is an escalating view on H&S in Asia Pacific. However, much of this still originates from a number of high-risk sectors. For example, most organisations in the oil and gas as well as chemical and construction sectors have stringent H&S policies in place, as the consequences of failure can be catastrophic or fatal.

In relatively low-risk environments such as the corporate office, a strong H&S strategy is often still disregarded. However, its potential impact—ranging from increased costs, reduced employee productivity and reputational risks—could be significant. Having a well-executed H&S strategy could produce a significant positive impact on the bottom line (Fig 1).

Fig. 1: Direct and Indirect Benefits from Strong H&S Performance

Source: Jones Lang LaSalle

Jones Lang LaSalle’s latest Corporate Research report, ‘Making occupational H&S part of your organization’s DNA’, highlights some of the main challenges and crucial success factors when rolling out an H&S change management process. For example, how adopting best practice communication, employee participation and platform building can help avoid pitfalls derailing change initiatives. Such major barriers can be cultural (e.g., local market practice and legislation), operational (practical issues such as limitations in multitenant buildings) and organisational (lack of understanding, financial and management support).

The report also focuses on the essential position that corporate real estate (CRE) teams have in driving this change. Our 2013 Global Corporate Real Estate Survey shows that the role of CRE executives is quickly evolving. New strategic demands from the C-suite ask not only for improvements in asset and portfolio productivity, but also for placing people productivity as part of their ever-widening basket of responsibilities.

This is for good reasons. Tasked with providing a healthy, safe and productive workplace, CRE teams are uniquely placed to facilitate and drive the change management process (Fig 2). The cultural change needed to progress toward a more engaged H&S behaviour requires involvement across the full spectrum of an organisation. The accelerating collaboration between CRE professionals and other corporate functions provides them with the ability to make the required connections and to influence all parts of the organisation.

Fig. 2: CRE Uniquely Positioned to Take Leadership and Promote Collaboration Between Corporate Functions

Source: Jones Lang LaSalle

Read more about this and other findings in Jones Lang LaSalle’s report, ‘Making occupational H&S part of your organization’s DNA’.

About the author
Alex Colpaert is the Research Manager for Jones Lang LaSalle’s Corporate Research team, based in Singapore.

Asia Pacific commercial real estate 2013 investment volumes are poised for a record year

Monday, October 28th, 2013

We have raised our 2013 year end forecast for transaction volumes into Asia Pacific commercial real estate from USD 110 billion to USD 120 billion, following a 33% increase in 3Q 13 volumes on the same period last year. This result would see the Asia Pacific investment markets on par with 2007 as the largest year of transaction volumes on record. On a year to date basis transaction volumes ate up 25% in Asia Pacific compared to 20% globally.

Following the upward revision to our 2013 investment volume forecast, we believe the momentum will continue into 2014 with investment volumes to reach record levels of USD 130 billion.

Transaction volumes across Asia Pacific in 3Q13 reached USD 30.0 billion, up 33% on the same quarter last year. Positively, every quarter so far in 2013 has surpassed the transaction volumes of their corresponding quarter in 2012. As a result, year to date investment activity reached USD 89.6 billion – up 25% on the same period in 2012.

Looking round the region at the larger markets; Japan continues to show signs of improving confidence, a strong rental growth outlook and very low all-in funding costs. As a result, we expect Japan to again contribute to a large share of the transaction growth. China continues to move through a stage of structural transaction growth with an ever growing pool of stabilised assets, stemming from the large development cycle seen over the past five years. Consequently, asset turnover rates need not improve to maintain growth in the investment market. Foreign investors are also keeping a finger on the pulse in China despite the on again off again concerns around credit risk and macro cooling.

Australia’s investment markets have delivered strong numbers over the past few years with a seemingly unfettered influx of offshore investors. Interest remains very strong and we expect another solid year in 2014 with a continued revival from domestic investors.

In Hong Kong and Singapore governments continue to monitor the markets. Transaction volumes in Hong Kong have slowed considerably in 2013 following government cooling measures. As a result, there is scope for upside moving forward given the low base of this year; however a standoff between buyers and vendors could emerge given tight entry yields in the current market. Investment activity in Singapore has been supported by a few very large deals, with less activity in the lower end of the market owing to the more restrictive lending conditions imposed by the government.

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

Sydney In Midst Of Residential Market Recovery

Tuesday, October 22nd, 2013

Recovery is in sight for the Sydney residential market. Rising demand from intending home-owners and investors, including many offshore-investors, is colliding with a long-term under-supply of accommodation, to drive up dwelling prices and recently lift auction clearance rates to 72%, the highest level recorded in a decade. Nor is the action all on the demand side of the market. Offshore developers from the Asia-Pacific region, including China, have arrived and are looking to cater to local and offshore demand for apartments.

Sydney’s housing recovery follows a long period of under-performance. Matching the slow growth of the New South Wales (NSW) economy, Sydney established house prices rose by 19% between 2006 and 2011, compared with the national average of 30%, and a 45% increase in Melbourne house prices. Since December 2011, however, Sydney house prices are up 9% compared with 6% nationally, and the pace of activity seems to be accelerating.

Sydney clearly has some catching up to do, and there are grounds for thinking this process has just begun. The Sydney residential market is under-supplied. In the past five years, dwelling commencements in NSW have totalled 151,000 or 20% of the national total, well below the long-term average of around 33%. In comparison, Victoria reported 253,000 commencements over the same period.

There has been a significant rise in apartment development in inner city areas of Sydney over the past five years. This is a function of planning policy, conversion of commercial / industrial property for residential uses, population growth and a structural change in buyer preferences. The ‘grey’ cohort (people aged 65 years and over) is to grow at twice the rate of overall population over the next decade, further driving demand.

As a further stimulus to demand, home mortgage rates are at multi-decade lows. And in the Sydney housing market, which is still the most expensive residential market in Australia, home mortgages tend to be large. So the demand for homes and apartments in Sydney is particularly sensitive to changes in home mortgage rates. The recovery in the share market has further bolstered household balance sheets, encouraging Australians to revisit residential property as an investment option.

Forward looking indicators are encouraging. The NSW economy is expected to show improvement, with potential positive impact on the housing sector. Employment growth is expected to be subdued in FY2014 but the rate of job growth is forecast to pick up from FY2015 onwards.

In recent years NSW has been exporting young blue collar workers to the expanding Queensland economy where lucrative jobs were on offer in the mining industry and house prices were much lower than in Sydney. Many of these inter-state migrants were potential first-home buyers, explaining in part why house price growth, particularly in the outer suburbs, has been subdued. But inter-state migration is slowing as the mining boom subsides and Brisbane house prices have been catching up with the Sydney market.

And, of course, Sydney has always been a magnet for international migration. As a result, the two residential sub-markets likely to show most activity over the next few years are the outer fringes of the Sydney metropolitan area and inner Sydney City where migrants and students tend to congregate.

About the author
Rupa Ganguli is focused on analyzing the Australian residential market for Jones Lang LaSalle, based in Sydney, Australia.

High Expectations From Workplace Productivity In India

Wednesday, October 9th, 2013

With workplace and worker productivity gaining increased attention from senior leadership around the globe, corporate real estate (CRE) executives in India are placing this objective as a key priority and are tackling it as an opportunity to create value.

Jones Lang LaSalle’s report, India Corporate Real Estate: On the Verge of Transformation, reveals that CRE executives in India are facing the highest productivity expectations as compared to their global peers. Indeed, 89% of them reported high expectations for workplace productivity outcomes, compared to 72% globally. Improving people and asset productivity is almost as highly expected (75% for both factors in India, compared to 61% and 47% globally).

Another sound bite around workplace perspectives at companies in India is that fewer are planning to add space in the next three years. Instead, most of them prefer to focus on workplace quality (78% in India versus 65% globally). If companies in India are hiring at the same time (the Team Lease Employment Outlook Survey [TeamLease Services Private Ltd is India’s largest and foremost people supply chain and HR services company] predicts high levels of optimism in terms of the hiring sentiment in India), occupation densities will automatically increase, as well as utilisation rates. It will be CRE’s role to make sure that worker experience is enhanced—or, at the very least, does not deteriorate—whilst density and utilisation peak.

These bullish findings, typical of India responses throughout the survey, are moderated by two facts. First, our sample base includes 78% of respondents from western MNCs operating in India. Second, a large proportion of respondents in India belong to large companies within the financial services and technology sectors, both of which traditionally put more emphasis on workplace and people productivity and set the standard for local and/or smaller companies.

Company expectations of productivity outcomes from CRE

Source : Jones Lang LaSalle, India Corporate Real Estate: On the Verge of Transformation, 2013

Question: What productivity outcomes is your organisation expecting the corporate real estate function to deliver?
(Those indicating high expectations)

Improving workplace quality and achieving high productivity expectations are not easy. A lack of investment capital is identified as the most limiting factor in driving workplace transformations by a majority of respondents in India and globally. The second inhibitor, complexity arising from cultural diversity, is more specific to India with its wide array of languages, religions and cultures. The incredibly diverse Indian workplace environment does require a special approach and strategy.

An established way to overcome this challenge is to collaborate with the other corporate functions. CRE teams in India-based companies are already ahead of many countries in working with IT, HR and finance to tackle common issues, although today, this happens mainly on an ad hoc, project basis. Taking the lead in instituting more permanent forms of collaborations, such as shared services types of partnerships, and establishing stronger relationships with the senior leadership is the way forward for CRE in India. By embracing a role of change agent acting in line with the overall business strategy, CRE leaders will be in a better position to fully realise the relevance of CRE and demonstrate its corporate value add.

About the author
Kateryna Kyryllova is a Manager in Jones Lang LaSalle’s Corporate Research team in Singapore.

The Next Big Move for Luxury

Monday, September 9th, 2013

Hong Kong is great for shopping with many international brands present in the market. One thing I do miss though is being able to walk into a department store and buy my favourite Aussie brands of clothes. So I’ve been happy to see that Australia is catching on to the online shopping phenomenon – which means that I can now go online in Hong Kong and for a small fee have my purchases shipped here.

A recent survey by the National Australia Bank estimated that online retail sales currently account for 6% of traditional bricks and mortar retailing in Australia. While still a small percentage, it’s likely to grow substantially in the years ahead as retailers and consumers alike warm to the idea and benefits of e-commerce. Interestingly, some of the “emerging” markets are leading the way in this area, with the most notable example being China. According to a recent study by Bain and Company, online retail in China has grown by more than 70% a year between 2009 and 2012 and this year China is expected to overtake the United States to become the world’s largest e-commerce market.

Across Asia Pacific, we’ve also seen many of the emerging retail markets transforming rapidly with the aggressive expansion of international retailers, not only in China but increasingly South East Asia (see last week’s blog on new retailers in the Philippines). In Australia, international retailers are making a somewhat belated entry into the market but are now stepping up the pace of their expansion plans. Australia is a small country in the scheme of things with a population of 23 million, but the average income of its residents is around eight times that of Shanghai.

For more insights on the latest trends in Asia Pacific’s retail sector, take a look at our recently released Retail Cities in Asia Pacific publication, The Next Big Move for Luxury.

Sources:
National Australia Bank (July 2013), NAB Online Retail Sales Index
Bain and Company (2013), China’s e-commerce prize

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

The Rise Of Asian Retailers In The Philippines

Friday, September 6th, 2013

Historically, the Philippines retail market has been dominated by Western retailers, particularly by American brands, reflecting the Filipino consumers’ strong cultural affinity with the United States. This is evident from the long-standing presence of American retailers in major shopping centres throughout the country. From 2010 to 1H13, it can safely be estimated that the number of new international retailers in the Philippines is more than 50. Of this estimate, it is worth noting the relatively large number of new Asian retailers that have entered the country.

The table below lists some international brands that entered the country between 2010 and 1H13. While this is only a sample, a significant number of Asian retailers come from the Food & Beverage category. These retailers have also undertaken rapid store expansions as seen by the select Asian retailers outpacing their Western counterparts by nearly three times. The sustained store expansions by Asian brands coupled with their relatively large retail space requirements has contributed to the healthy take-up and stable rental growth of the local retail sector in recent years.

Select International Brands in the Philippines (2010-1H13)

Note: The list is not exhaustive.
Sources: Various retailers’ homepages, company disclosures and new articles, Jones Lang LaSalle Research

One of the key factors driving the growth of these Asian retailers in the country has been the positive performance of the Philippine economy amidst the weak global recovery. The country posted a robust 7.5% GDP growth rate in 1H13, leading the economic growth of the Asia Pacific region together with China and Indonesia. In the same period, the country has received investment grade credit ratings from various major international credit rating agencies which has further reinforced its strong economic position.

This positive economic performance is underpinned by healthy domestic demand due to the rising disposable income of many Filipino households. The higher household income can be attributed to the continued growth of overseas Filipino (OF) remittances and the local offshoring and outsourcing (O&O) industry. According to the latest Consumer Expectations Survey by the Bangko Sentral ng Pilipinas, around 95% of the OF households surveyed spent the remittances on food alone. This may partly explain the success and aggressive expansion of Asian food & beverage retailers in the country. Similarly, the sustained expansion of the O&O industry, which offers above average industry salary, has likewise helped raise the disposable income and purchasing power of the O&O workforce. As of end-2012, approximately 780,000 employees are employed by the industry according to the Information Technology and Business Processing Association of the Philippines.

As the Philippine growth prospects remain positive, we expect consumer appetite to remain healthy, supporting robust domestic demand that may drive the sustained entry and expansion of new and existing Asian retailers in the country.

About the author
Janlo de los Reyes is the Senior Research Analyst for Jones Lang LaSalle in the Philippines.

A Changing Perception – New Generation Chinese Companies Take A Strategic Approach To Facilities Management

Monday, September 2nd, 2013

In recent years, a new generation of young, dynamic and driven Chinese companies such as Tencent, Huawei, CICC and Lenovo have been in a constant race for market share both globally and in China. Now, as they look to further improve their on-going competitive advantage, more of these companies turn to their real estate portfolio, investing in facilities management (FM).

At the root of this is a change in perception of FM. In particular the more forward–thinking companies indicate they now look at FM as more of a strategic function from which they can gain a competitive edge against peers that are struggling with challenges such as accommodating headcount growth, attracting and retaining talent, boosting international credibility, and improving quality management and risk mitigation.

A maturing economy will drive the evolution of the IFM industry

It is evident that the implementation of Integrated Facilities Management (IFM), whether this is done in-house or outsourced, is picking up fast across China. In particular, Chinese multinationals are evolving rapidly, shifting toward IFM to improve operating efficiency, workplace utility, safety, employee comfort and overall experience.

However, at present, companies that implement IFM still account for just a small part of the market, with most Chinese (state-owned or formerly state-owned) enterprises deploying simple in-house and out-tasking models. As seen in mature markets globally, outsourcing practices are likely to drive evolution. However, in the short term, IFM consultancy is expected to be a more attractive concept for most Chinese companies as a reduction in staff numbers often remains very unattractive.

A developing industry, with some growing pains

There are also some considerable complications for companies seeking to operate their facilities according to international best practice standards. Mainly, the quality and consistency of services is affected by the shortage of qualified staff and high quality service providers, vendors and suppliers. For example, a major IT firm recently experienced issues at a chip manufacturing site. Specialists from Singapore had to be brought in to help run the maintenance of the clean room and wider facility equipment due to the lack of qualified vendors able to deliver locally. These and other hurdles will pose difficulties for Chinese companies and new market entrants alike

Nevertheless, the market conditions in China seem ripe for fostering the evolution of the IFM industry in China. There are many challenges and potential pitfalls ahead for those unfamiliar with the delivery of IFM services or the nuances of managing real estate in China. Those companies that take the time to understand both sides of the equation will be best placed to gain competitive advantage over their peers.

Read other findings in Jones Lang LaSalle’s report Integrated Facilities Management in the Middle Kingdom, which will be launched at the Shanghai IFM conference on 4 September.

About the author
Alex Colpaert is the Senior Research Manager for Jones Lang LaSalle’s Corporate Research team, based in Singapore.

Investment Activity Ahead Of Expectation

Tuesday, July 30th, 2013

Asia Pacific investment activity reached USD 59.7 billion in the first half of 2013, up 21% compared to the same time last year, coming in ahead of expectation. Growth is being driven by the larger markets in the region with Japan, Australia and China all performing well. Domestic groups, particularly the REITs have been active and are being supported by high interest coverage ratios, a lower cost of debt and new capital sources which has improved their competitive positioning and afforded them considerable dry powder for yield accretive acquisitions.

We also continue to witness a trend of offshore groups investing via separate accounts managed by global funds with capital being sourced from South Korea, US, Canada and the UAE.

Around the region, Japan surprised on the upside in 1H13, posting 50% growth to USD 10.2 billion. Renewed market confidence and stimulatory measures have supported J-REIT prices and investment activity as well as resurgence in IPO activity. Rents have shown some signs of early growth and are up 4.7% over the past year, the fastest growth rate since early 2008.

Australia continues to attract capital from both domestic and offshore groups, particularly via separate account funds and joint venture structures. A number of large deals were concluded during the quarter highlighting continued demand from both offshore and domestic institutional investors and pension funds, with cross border purchasers accounting for 25% of total acquisitions.

China’s capital markets bounced back to USD 6 billion from 3.6 billion in the first quarter. Despite macro concerns and the recent episode of interbank rate volatility, foreign buyers continued to execute, accounting for around 30% of overall deals. The markets in Hong Kong have suffered somewhat following cooling measures introduced by the government with investment volumes down 53% in 2Q13 to USD 1.5 billion. Singapore improved on 1Q13 by 21% to reach USD 2.3 billion. The market seems to have passed its cyclical trough with office rents recording growth for the first time since 2011. Improved market fundamentals and a number of large deals that are currently in advanced stages of negotiation should support investment volumes over the remainder of the year.

The outlook for the remainder of the year is positive and we remain optimistic in reaching our 2013 forecast of USD 110 billion.

About the author
Nicholas Wilson is a Research Manager of Asia Pacific Capital Markets for Jones Lang LaSalle in Singapore.

At The Crossroads

Wednesday, July 17th, 2013

In a post-GFC environment, many Corporate Real Estate (CRE) professionals find themselves at the crossroads. Having delivered up significant cost savings when demanded during the GFC, this new regime of cost efficiency is now accepted as business as usual. I don’t think anyone is under the illusion that cost savings are going to leave the boardrooms of corporate Australia. It is the new world order.

However, at the same time, the C-suite are asking CRE professionals to shift the focus onto value creation and asking them to deliver real estate strategies that drive the performance of the business. It seems that Australian CEOs are more demanding than their counterparts in other parts of the world.

Productivity is at the top of the list according to our Australian CRE Trends survey, with CRE executives asked to drive productivity at the asset, workplace, people and business levels. Facilitating remote and mobile working, transforming workplace quality and bringing more flexibility to the leased portfolio rounded out the top four.

The Changing Demands of Senior Leadership

Source : Jones Lang LaSalle’s Australian Corporate Real Estate Trends 2013

Interestingly only 30% of CRE executives in Australia felt well-equipped to meet all the demands of the C-suite. Metrics were a big part of being able to demonstrate the value-add. Only 22% of CRE professionals said they could extract metrics on demand at the facility level and only 20% at the portfolio level.

So how to deliver these strategic imperatives whilst at the same time remaining vigilant on cost savings? Our Australian survey identified four key strategies to do so – getting better aligned with the C-suite and other business enablement functions, driving a productivity agenda, breaking through the barriers to success and tackling big data.

Read more on how CRE professionals can deliver on both sides of the cost vs value equation in our Australian CRE Trends report.

About the author
Anna Town is a Director in Corporate Research based in Sydney.