Singapore, 15 October 2015 – Knight Frank, the independent global property consultancy, today launches Global Cities: The 2016 Report, examining the market performance of 20 global cities across the world, of which 10 are in Asia Pacific.
The UN is forecasting the world’s cities to increase in population by 380 million people in the next five years. Consequently, the planet will need to build the equivalent of five cities the size of Los Angeles every year between now and 2020, and all the supporting infrastructure.
This increased urbanization, combined with greater demand driven by economic growth, will cause office rents to rise in the key global cities. Knight Frank forecasts that Madrid will top rental growth at 22.2% by 2018, followed closely by Mumbai (21.3%) and San Francisco (20.2%).
Nicholas Holt, Head of Research, Asia Pacific, Knight Frank Asia Pacific, says, “Despite the slowdown of China and its impact on the region’s economies, the Asia Pacific region will still see relatively strong economic growth over the coming years. Coupled with the huge forces of urbanization in India and China, the next three years are still very much a growth story for the Asian Global Cities.
“Three of the top five global cities for office rental growth over the next three years are forecast to be in Asia Pacific, with the Indian cities of Mumbai and Bengaluru, benefiting from a strengthening economy, in second and fifth place respectively.”
Alice Tan, Director and Head of Consultancy & Research, Knight Frank Singapore, comments, “Singapore’s office leasing market is currently seeing lower rents in the second half this year compared to previous highs in early 2015, as demand from large-space tenants waned against the backdrop of the slowing economy and muted market sentiment.
“Looking beyond existing headwinds, growing the commercial property landscape has been an integral part of Singapore’s ongoing quest to cement its position as a global financial and trading hub and an established global city. Over the next three years, the new supply of office spaces planned especially in the Central Business District is anticipated to limit rental growth with possible rental contraction if demand remains muted. Yet, this provides more quality workspace options at more competitive rents for enterprises choosing to set up their operations in Singapore.”
“Anticipating the evolution of future cities, the Infocomm Development Authority (IDA) of Singapore plans to transform the country into a Smart Nation, advancing technology for a new generation of business and society. This, sets Singapore at the forefront in the league of global cities.”
Markets attracting foreign investments
Looking at the total real estate transaction volumes within each market in H1 2015, India has emerged as the market with the highest percentage of foreign investment at 67%, followed by Malaysia (59%) and Singapore (43%).
Holt explains, “The growth of foreign private equity investment into the Indian real estate market has been a notable characteristic of the region in the first half of 2015, with US and Singaporean investors the most prominent. In Southeast Asia, Malaysia has also seen a significant percentage of foreign interest with groups from Australia, Singapore, China and Canada, purchasing assets in the first six months of the year. Given the positive economic performance of India, and a potential counter-cyclical approach towards investing in Malaysia (despite the tough conditions), we expect foreign groups to continue to look at these markets in 2016.”
Neil Brookes, Head of Capital Markets, Asia Pacific, Knight Frank Asia Pacific, highlights, “We are experiencing record transaction levels in the core markets of Asia Pacific such as Sydney and Tokyo, driven by investor demand from the US, Singapore and China. Investors are attracted to these markets by the relatively high returns achievable and the recent weakening of the currencies against the US$.”
Destinations attracting Asian outbound capital
A growing wave of Asian outbound capital is targeting core real estate assets in Western markets. Over the last 24 months, Asia investments into the US, UK, Australia and Continental Europe totalled US$78.4 billion.
Brookes explains, “We are seeing strong desire from Asian investors to diversify their holdings into markets outside of Asia, particularly Europe and Australia, and a substantial sell down of assets in China due to the worsening economic conditions.”
Ian Loh, Executive Director and Head of Investment & Capital Markets, Knight Frank Singapore, comments, “Many Singapore firms have successfully ventured overseas since two to three years ago with the slowdown in the real estate market and lack of local development and investment opportunities in Singapore.
“We continue to see great interest from Singapore investors, especially in London, Australia and Europe. “The weakening of the Australian dollar below parity against the Singapore dollar is one of the key factors spurring Singapore investors to invest more in Australia.”
Capital markets opportunities
Jeremy Waters, Head of International Capital Markets, Knight Frank, comments, “We expect advanced industrial nations to drive the global economy in the next three years; with the Global Cities in those nations offering the strongest opportunities for real estate investors.
“With the US moving closer to a rate rise, the dollar is strong, and American private equity investors are already buying more stock overseas. We see this trend accelerating in 2016. They tend to be more comfortable with a higher risk profile, so we expect increased interest in sites and short income assets.”
“In Europe, thanks to low bond yields and signs of economic turnaround, we are predicting more opportunist money will come into the market. In general, we see investors casting the net wider, with specialist property rising up the agenda. In part, this reflects a growing desire to seek diversity in a portfolio.”
Over the longer term, commercial real estate has proved its value within a mixed investment portfolio, notably during times when other asset classes have been unstable.
To download the report, please visit http://www.knightfrank.com/globalcities