In Asia, real estate will always be viewed as a preferred asset class and thus will not suffer from low demand. Asians are willing to pay prices at lower internal rates of return, which foreigners are unwilling to match. In the real-estate sector, investor sentiment is fairly positive and confidence in its economic growth will underpin higher rents and capital values. Yet there remain uncertainties, due to concerns of asset over-pricing, inventory build-up and identifying assets that offer good risk-adjusted returns.
Amid stabilising growth in retail spending and office property demand, investors are now focusing on bigger, liquid markets and safer core assets such as Australia and Japan. Asia is also experiencing the rise of smaller niche sectors such as healthcare, industrial, logistics and distribution facilities, as well as assets in secondary locations including Indonesia, Thailand and Malaysia.
The retail property sector remains strong, and in a recent global poll conducted by real-estate services firm CBRE, 70% of all shopping centres currently under construction throughout the world were found in Asia, and 50% were in China alone. This reflects Asia’s strong economic growth, which results in sustained consumer spending.
The search for cheaper raw materials has spurred the proliferation of free-trade areas, as Asia has actively started seeking multilateral trade partners. These areas, which include the Association of Southeast Asian Nations free-trade area set to be launched in 2015, will have a sizeable impact on logistics, and the movement of finished goods, services and labour in Asia.
Other logistics trends will include more third-party logistics mergers designed to facilitate client needs and supply chain optimisation. Logistics hubs are being consolidated while regional distribution centres are being made more flexible. Other areas of improvement will include port system productivity, as well as the integration of manufacturing and services.
However, the continued effects from 2012 of high inflationary pressures and high non-performing loans in Vietnam; the flooding in Thailand; and Japan’s triple natural disasters have adversely affected Asia's growth, disrupting supply chains and causing the relocation of manufacturing plants. Another potential growth dampener is China’s economy, as a slowdown will result in a reduced demand for commodities and other imported products from neighbouring Asian countries.
Lawrence Yeo is CEO and principal consultant of AsiaBIZ Strategy, a Singapore-based management consulting firm providing Asia market research, market entry and expansion strategy and export/FDI promotion services. Website: www.asiabizstrategy.com.