Archive for the ‘Asia Pacific’ Category

Occupational fundamentals supporting higher investment volumes

Tuesday, April 15th, 2014

Another year and another quarter of investment volume growth around the world. Investment markets which have grown consistently over the last four years have started 2014 brightly with 23% growth compared to this time last year.

Much of the growth over the last four years has been associated with a hunt for yield globally, not just within the property sector but across the global capital markets. With government bond yields at historic lows in many countries commercial property has provided an attractive source of risk adjusted investment returns, with many groups investing in the sector for the first time.

However, while investment volumes have continued to improve, occupational fundamentals have struggled post the financial crisis. The structural changes happening in the financial services industry have forced occupiers to consider their longer term space needs, in terms of quality, quantity and location. This has made for a depressed and stagnant leasing environment in many cities. This now seems to be changing with many more cities seeing an improvement in take up fundamentals and a return of rental growth across many of the office markets JLL covers globally. The improvement is not uniform, with many cities still providing plentiful options for occupiers it will be a long process, but we certainly seem to be seeing the first signs that the corner has been turned.

This should give renewed impetus to investment markets, stronger corporate demand coupled with financing markets returning to normality in most countries will provide an additional level of enthusiasm for investors to proceed with purchases. In addition the rise in values is encouraging vendors to place more stock into the market place, particularly in 2014 portfolios and larger lot sizes.

With US$130 billion transacted in the first quarter of 2014, we are confident that we shall see another year of investment growth. At this stage we are estimating US$650 billion for the full year, 10% higher than we recorded in 2013.

About the author
David Green-Morgan is Global Capital Markets Research Director, based in Singapore.

Has the importance of physical retail space been vindicated by Alibaba?

Friday, April 11th, 2014

Alibaba’s decision to significantly invest into Intime Retail, which operates 36 department stores throughout China provides an interesting insight into how internet retailers might be viewing the importance of multi-channel retailing and the role of physical retail stores.

China’s Alibaba Group, one of the world’s largest internet retailers, globally has agreed to invest US$ 692 million to acquire a 26% stake in Intime Retail (Group) Co., the Hong Kong listed operator of predominantly luxury orientated department stores, throughout mainland China.

While this news should not be read as a reversal of the significant global trend of retail spending switching from some physical retail stores to the internet, it is in our opinion a vindication from one of the strongest internet retailers as to the ongoing importance of physical retail space.

We anticipate that the most successful retailers in the future are going to be those with a complete multi-channel offering. Those providing efficient and convenient methods of sales, deliveries and returns through both a physical store portfolio and a strong internet platform will likely be the best performers. Much comment has been made of “older” retailers having to modernise and embrace the growing trend of internet selling in order to survive in the modern retailing world. As the online competitive landscape evolves, it will be interesting to observe whether other internet retailing giants follow Alibaba’s move into physical stores almost as a second generation evolution of e-commerce.

In addition to retailing, the ownership and management of retail places is becoming increasingly specialized and challenging. Shopping mall owners need to ensure that their retail assets remain relevant in the rapidly evolving retail landscape. Nowhere is this more prevalent than in China, which has the world’s largest supply pipeline of shopping malls under development. As luxury brands and first mover fast fashion retailers look carefully at and rationalise their own expansion plans, developers might look to attract internet based operators as one way to ensure that their malls remain competitive. Don’t be surprised to see landlords chasing the signatures of internet retailers with as much vigor as they once did with global luxury brands and international department stores.

JLL global retail research team has completed a fascinating piece of research called Redefining Retail Places. While it can be read as presenting a daunting future for shopping malls, its themes should certainly be used to form part of the picture when owners are making: buy; sell; hold; joint venture and strategic management decisions.

Our most recent outlook to retail real estate investment in Asia Pacific also highlights an expected trend of specialist retail asset managers and co-investors playing a growing role alongside the investment capital and developers, in ensuring assets are built and managed to their best advantage.

We are confident of the role that physical retail space will play in retailing going forward, however, we believe that now more than ever the design, development and management of retail assets requires greater specialist skills from ever before.

About this author
David Raven is the lead director for retail investment for Asia at JLL.

Cubicles, corner offices and cigarette smoke

Monday, March 24th, 2014

When watching the comedy cult classic ‘Office Space’ for the umpteenth time the other week, the property researcher in me came out in all its ‘geekiness’. Aside from the hilarious ‘fax machine scene’, the dated work environment of cubicles, lavish corner offices and even the acceptance of staff smoking indoors at this fictional IT company made me chuckle out loud. I caught myself thinking: ‘I can’t believe that we used to work in this environment … how depressing’. However, I also quickly realised this was only just over a decade ago!

The workplace has transformed at a lightning speed over the last few decades, and it seems ignorant to think this trend will be any less pronounced looking out to 2020 and further. Indeed, a recent survey among real estate professionals indicated that nine out of ten agreed that the next decade will see far greater change than the last.

The evolution of the workplace was one of the hot topics debated during the Offices 2020 Research campaign. During round table discussions with developers, landlords and corporate occupiers in six major cities, we explored what the office would be for and how technology will radically impact on fit-outs and space utilisation.

Figure 1: Evolution of computer technology has significantly changed the office design brief

Source: JLL Research

Much has been written about the obsolescence of some workplace concepts, and sensationalist headlines have predicted ‘the death of the office’. However, from our discussions with clients, we expect that in reality, most white-collar workers will still find themselves working with others in an office building in 2020. Offices have a coordinating, sharing, controlling, creating, socialising and even celebrating role; these qualities are not going away anytime soon.

However, this does not imply a lack of change. There will be an increasing emphasis on collaborative ‘social’ working environments, mobile working, cultural diversity within the workforce and the need for workplaces built around employee work-life priorities. Also, companies increasingly look to the workplace for (business) productivity gains. This shift will move at very different speeds in Asia Pacific and often with a very distinct local flavour. Nevertheless, it will have a profound impact on what gets built. It will be crucial for landlords to understand these drivers of change, ensuring offices are spatially efficient, connected, environmentally sensitive, enabling flexibility, enhancing productivity and generally an inspirational place to be.

The workplace is just one of the six big-picture questions that make up JLL’s Offices 2020 Research. The campaign paints a big-picture outlook for six Asia Pacific cities, tackling fundamental issues (identified by our clients themselves) that will shape the future of offices in the next decade. It examines, for example, what will drive growth, where tomorrow’s office hotspots will be and the impact of strata ownership structures.

Essentially, Offices 2020 is about helping landlords and occupiers prepare for change by identifying key issues and starting the conversation now to outperform in the future.

For more information on Offices 2020 and to download a copy of the reports, please visit JLL’s Offices 2020 website.

Please join us in our discussion group on LinkedIn and share your opinion!

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

Asia Pacific Sets New Commercial Real Estate Transaction Volumes record

Monday, January 20th, 2014

If you thought you were busy on deals last year, you were right; commercial real estate transaction volumes in Asia Pacific set a new record in 2013 – reaching USD 126.8 billion, surpassing the previous record set in 2007 at USD 120.5 billion.

Investment volumes surged 29% on the previous year, with record breaking volumes for full year 2013 in China and Australia, and volumes doubling in Japan in yen terms. Investment activity has been buoyed by the on-going improvements in both debt and equity markets, heightened liquidity across the asset class and higher allocation to the real estate sector from multi-asset managers.

Momentum was with the market across the year and is expected to continue through 2014. Across 2013, every quarter recorded an improvement on their corresponding period in 2012, culminating in record breaking final quarter where volumes reached USD 37.2 billion, the highest single quarter since 3Q07.

In the opening weeks of 2014, deals have already been recorded by our Jones Lang LaSalle capital markets teams and work in progress points to a robust first quarter. Our forecast is for transaction volumes to rise a further 10% to USD 140 billion in 2014.

Going around the countries; Japan led with the full year at USD 41.7 billion, up 67% on 2012 and coming in at USD 12.2 billion in 4Q 13. China and Australia volumes were the highest on record. In China volumes were at USD 25.1 billion, up 71% on 2012 finishing strongly in 4Q13 to a record USD 8.5 billion. Australia’s volumes reached USD 6.4 billion in 4Q, up 62% y-o-y and full year at USD 21.9 billion, up 33% on 2012.

Elsewhere Singapore also set a record on a couple of very large deals, up 40% on 2012 at USD 11.8 billion. In Hong Kong, government measures to cool the market have been effective with volumes down 35% on 2012 at USD7.3 billion. Whilst South Korea was slow down 36% on 2012.

The equity raising environment is positive, leaving an abundance of capital chasing assets. Equity raised by Asia Pacific REITs also reached a new record in 2013 at over USD 20.1 billion, almost double the level seen in 2012. Private funds have also been active with equity raised in 2013 reaching USD 11 billion – up from USD 6.4 billion in the previous year. A number of investors have also highlighted their intentions to make fresh commitments in 2014. With such an abundance of capital chasing assets, investors are starting to move up the risk curve in order to execute deals.

Interest rates across Asia Pacific have also been less reactive to the reduction in US Fed asset purchases announced in December, when compared to the response following the announced plans back in May 2013. Swap rate and benchmark sovereign bond yields are relatively unchanged from late December.

The lower for longer interest rate environment, together with momentum in the market and capital already raised and yet to be deployed points to a busy and prosperous new year for 2014.

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

The Highlights of 2013

Monday, December 23rd, 2013

It’s been another interesting year in Asia Pacific. We’ve seen quite a bit of change in economic dynamics across the region, while in the real estate sector it’s been a time of cautious corporates and busy investors. The 2013 highlights:

China and Japan dominated the headlines. The region’s number 1 and 2 economies made good strides in addressing their challenges. China averted a hard landing and its government has pushed hard on a range of “austerity” measures. The Japanese government launched a massive stimulus program to reignite economic growth and we’ll get a better idea over the next 12 months as to the success of Abenomics.

The leasing and investment disconnect widened. Ongoing global uncertainties have seen corporates remain cautious in their hiring and space requirements, and 2013 is likely to be the weakest year for AP office leasing activity since 2009. At the same time, QE and ultra-low borrowing costs have driven strong commercial real estate investment activity – so strong, in fact, that 2013 is likely to equal the previous record back in 2007. We’re forecasting leasing activity to pick up next year and investment volumes to strengthen further, so it will be interesting to see when the disconnect starts to narrow.

Chinese outbound investment is set for a record year, with commercial volumes up 25% y-o-y as at the end of Q3. The major destinations for this capital have been Europe, the US, Australia and Singapore. Chinese buyers and developers have also been very active in overseas residential markets.

e-commerce accelerated across the region, a trend which is sure to drive major change in the retail and logistics sectors in the years ahead. At the same time, international retailers have continued to set up shop in Asia Pacific, attracted by our region’s high economic growth and increasing wealth levels.

The residential sector saw strong demand in many markets including China and South East Asia. Interest rate cuts also stimulated sales activity in Australia. Meanwhile in Hong Kong and Singapore, transaction levels have fallen following a series of cooling measures aimed at keeping a lid on home prices.

On behalf of the AP Research team, I would like to wish our readers a very happy festive season. We hope you’ve enjoyed our blogs this year – we’ll be back in January with the start of our 2014 series.

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

Why Managing A Construction Project Is Like Making A Movie

Wednesday, December 11th, 2013

40–50% of all major construction projects overrun on timing and/or costs, according to a survey by the Construction Management Association of America.

Meanwhile, in Malaysia, a recent survey concluded that a shocking 92% of construction projects overrun on time or budget.

In any market, construction projects can easily go off track. Appointing a professional construction manager can significantly reduce project risk. As a result, in recent years, the use of professional construction managers has increased significantly across Asia Pacific.

So what is the difference between a project manager and a construction manager? When researching this, it became apparent that a good definition is hard to find.

‘Producing and directing’ real estate projects

While project management is well understood and is usually considered critical to the success of a real estate project, the importance of construction management is often still overlooked and undervalued.

The relationship between a project manager and a construction manager can, to some extent, be compared with the producer-director relationship during the creation of a movie. While the responsibilities of the two roles during filming are very different, both share the goal of successfully completing a movie. Both roles must be performed to reach this goal, even though they could both be carried out by the same person. Similarly, the project manager and the construction manager share the goal of successfully completing a construction project. Both roles are required, and each has a specific area of responsibility.

The graphic below shows the importance of both roles as well as the key distinction: A construction manager, as compared to a project manager, gets into the practical details of construction and site activities and, at the same time, provides expert consultancy throughout the project lifespan.

The Roles of Project Manager and Construction Manager

Local market nuances can put business at risk

As multinationals continue to expand rapidly into emerging regions where they often don’t have sufficient experience, this consultancy angle has been one of the key reasons for the strong uptake of construction management. Understanding local market nuances is one of the critical success factors of any capital works project.

The most obvious example of differing local market conditions is the quality of the available workforce. The skills of trade contractors can vary significantly by country, directly affecting the level of expertise and control required. Local nuances also include the level of transparency and ethics, logistics and infrastructure, cost of trade contractors and materials, legislation such as health, safety and environment (HSE), as well as taxes and authority approvals.

If not properly managed, all of these factors could easily translate into delays, unexpected costs, onsite accidents or poor quality workmanship.

In situations where market knowledge proves insufficient, integrating local, on-the-ground expertise and best practice management—through, for example, the employment of a construction manager—is required.

Unfamiliar local market dynamics is just one of the many hidden risks throughout a project delivery. The soon-to-be-released paper, entitled ‘Who’s Protecting Your Blindside?’, explores why involving a construction manager early on in a project can protect business from project risk. For more information on this subject, and to receive a copy of the upcoming paper, please visit Jones Lang LaSalle’s SlideShare channel.

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

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.