The Top 5 Markets for Investment in 2018

Investors believe Singapore’s commercial and residential markets have bottomed

Singapore – The promise of a bottom in Singapore’s office market has caused its ranking as an investment market to soar from next-to-bottom last year to third in this year’s Emerging Trends in Real Estate® Asia Pacific 2018 report, a real estate forecast jointly published by the Urban Land Institute (ULI) and PwC.

After two years of declining rents caused by a sluggish economy and a glut of supply, investors believe Singapore’s commercial and residential markets is near its bottom. Office rents in Singapore have firmed probably earlier than expected, while completion of the region’s biggest office deal in September 2017 has now galvanized the local market and set a floor for valuations.

Several core office transactions have taken place this year, with foreign funds buying actively. The residential sector is also showing signs of recovery, with rising transactions and a slight uptick in pricing for the first time in four years.

Sales of developer sites have surged amid tightening supply as developers seek to replenish the land banks. The rebound seems likely to be sustainable, given several years of pent-up consumer demand.

The Chinese developers have also been active in buying land, pushing up land auction prices for residential sites significantly through 2017.

“Singapore has shot up the office rankings this year and is now in third position,” said Khoo Teng Chye, Chairman of ULI Singapore, and Executive Director, Centre for Liveable Cities.

“This position is reassuring for Singapore’s investment prospects, given that we have major projects in the pipeline to transform our city, such as the development of Jurong Lake District as an exciting second Central Business District, and the doubling of capacities of both our air and sea ports.”

In the region, there is increased investors’ interests in alternative asset classes such as data centers and healthcare care related assets,” said Yeow Chee Keong, Real Estate and Hospitality Leader, PwC Singapore. “We believe the way forward could be more collaboration between traditional real estate managers with healthcare service providers to enhance the yield on underutilized assets.”

Looking at the Asia Pacific region as a whole, of all the influences shaping investment flows into regional real estate, it is excess liquidity that is seen as having the biggest effect.

Local sovereign and institutional funds bearing stockpiles of accumulated cash are buying property, both regionally and globally, creating competition for assets that is changing investment patterns in fundamental and often unexpected ways.

Changes include the realignment of traditional risk/return classifications, changing expectations over returns, the convergence of core and opportunistic investors on the value-add space, and investor migration into alternative asset classes and new markets that in the past were of little interest, including data centers, affordable housing projects, build-to-rent (or co-living) facilities and student and senior housing.

Emerging Trends, which is being released at a series of events across Asia over the next several weeks, provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area. It is based on the opinions of more than 600 real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.

The top five markets for investment and development in 2018:

1. Sydney

Sydney’s appeal lies in the fact that it is a major city in a mature economy combining a reasonably deep and liquid market of core assets with a better-than-average yield.

2. Melbourne

Melbourne’s appeal is similar to Sydney’s — a mature market, high-quality core assets, and relatively good yields by Asian standards.

3. Singapore

Bedok Residence

After two years of declining rents caused by a sluggish economy and a glut of supply, the promise of a bottom in Singapore’s office market has caused its ranking to soar from next-to-bottom last year to third in this year’s table.

4. Shanghai

Shanghai is seeing an increase in transactions driven partly by surging demand from domestic buyers who are unable to export capital due to a regulatory crackdown, and partly by foreign core funds flush with new capital they need to deploy.

5. Ho Chi Minh City

With an economic trajectory thought to be similar to an early-day China, Vietnam is seeing large regional developers and an increasing number of private equity funds betting it will offer up a repeat of the Mainland China experience in terms of property price inflation.

Leading buy/hold/sell ratings for the various asset classes are as follows:

  • Office—buy Ho Chi Minh City, sell Taipei.
  • Residential—buy Ho Chi Minh City, sell Seoul.
  • Retail—buy Ho Chi Minh City, sell Taipei.
  • Industrial/distribution—buy Shenzhen, sell Taipei.

The full report is available here.

Article contributed by Urban Land Institute and PwC – Globally.