Despite a mixed bag of economic news worldwide, investment in the real estate sector is on the upswing. In fact, executives throughout the industry are reporting that demand is outweighing supply in some markets, resulting in bidding wars. The Asia-Pacific region is the focus of much of this attention.
“There are more Asians investing than we’ve ever seen before,” says Craig Hughes, PwC’s UK real estate leader. PwC attributes this to a shift in global economic power. PwC estimates that this year the Asia-Pacific region will have a larger middle class than Europe and North America combined. It also maintains that property is the least overvalued asset in the world today, particularly when compared to equities.
“There’s a battle for assets,” says Mr Hughes. “And capital likes to go to locations it trusts.”
Top on the list, real estate service companies say, are traditional gateway markets such as London, New York, Paris and Tokyo. As for product type, central business district office property remains the most popular direct investment sector, according to a report from Colliers International.
In the report, Colliers says that international property investors anticipate an increase in investment volumes across markets over the next 12 months. “Debt is driving the market and investors are building on the greater risk appetite that they adopted in 2014,” it says.
In surveying more than 600 global investors, Colliers also found that only 14% of investors are willing to invest more than 50% of their total real estate allocations outside their home region.
According to PwC, other trends include social changes caused by an ageing workforce, the coming of age of the '18-hour city' concept, the impact of climate change and resource scarcity, and technological breakthroughs (as well as their disruptions).
“This is creating a drive toward city living where people can live, shop, dine and walk to work,” says Mr Hughes. “This means organisations must also differentiate themselves by giving employees quality office space.”
Consequently, the urban residential market is also popular among investors. According to the Colliers report, industrial and logistics properties are also in demand, particularly with US investors.
Property in the UK is the most sought after in Europe and will continue to be so in the next year to 18 months, according to PwC. “Real estate prices in London are high, but investors are willing to pay,” says Mr Hughes. “London offers great diversification and capital preservation stability.” Following the UK are France, Germany, Spain and the Netherlands.
“Berlin is coming onto the radar screen because of its development in technology,” says Mr Hughes. According to the Emerging Trends in Real Estate Europe 2015 report, published jointly by PwC and the Urban Land Institute (ULI), Berlin is challenging many more established cities, among them Munich, to become one of Europe’s leading markets for investments, largely because it is viewed as being less costly than other major German cities.
Other cities proving increasingly popular with investors, according to the survey, are Madrid, Birmingham, Amsterdam, and Lisbon. “Even Athens was indicated on our survey,” says Mr Hughes.
Out of Europe
In the Americas, the US is comfortably the preferred investment destination for investors, particularly the traditionally strong cities such as New York, Los Angeles, San Francisco, Chicago, Boston and Washington, DC.
In the Asia-Pacific region, global investors, including 31% of US investors, are investing mainly in Australia, with Japan, Singapore and China also popular.
PwC and ULI’s Emerging Trends in Real Estate Asia-Pacific 2015 report indicates that in Asia-Pacific, two types of markets are favoured: those in Japan and those in the emerging markets of south-east Asia, Indonesia and the Philippines in particular. The interest in Indonesia and the Philippines has dimmed recently, however, amid concerns that US investors will not invest as heavily due to possible domestic interest rate hikes.
The situation in Japan is different, according to the report. Nearly all property types are hot in the country, and throughout Asia the office sector is the go-to asset class. “Too much money is chasing too few available properties, however,” says Mr Hughes.
Meanwhile, Asian logistics properties are experiencing strong demand. In fact, the sector represents about 10% of total commercial real estate transactions in the region, according to Deutsche Bank.
Out of the emerging world
Elsewhere, less developed countries in south-east Asia, Africa, the Middle East and Latin America are emerging as competitive, increasingly attractive players in the global real estate market, according to a report from real estate services company Lamudi.
“Most [of these countries] have large, young working populations,” says Kian Moini, Lamudi’s co-founder. “Countries such as Mexico, Jordan, Saudi Arabia and Nigeria are home to some of the world’s youngest populations.”
Indeed these countries are facing a difficult set of challenges to those in the developed world, though these challenges do come with opportunities. For example, major infrastructure projects, particularly in Jakarta and Bogota, are fuelling growth and making these cities more attractive.
“Surabaya in Indonesia has a great amount of potential for real estate investors,” says Mr Moini. “The local government is working to connect the east and west of the city, to attract foreign investment and encourage businesses to take advantage of its growing office space.”
Likewise, Abuja in Nigeria benefits from well-developed properties, architecture and infrastructure. “The city’s business zone is home to an array of multinational companies expanding their offices into the emerging market,” adds Mr Moini.
Spurring growth across many emerging markets is the steady growth of internet technology. For example, 84% of Jordanian internet users now access the web every day. This is resulting in an optimistic mood prevailing throughout each market, a feeling that is confirmed in Lamudi's survey.
Other markets that are hotting up when it comes to office space are Manila in the Philippines and Cartagena in Colombia.
“Cartagena benefits from its platform for foreign trade – its seaports, airport and close proximity to the Caribbean, Florida and Panama,” says Mr Moini. “Renowned international companies are putting down roots in Cartagena, taking advantage of Colombia’s 48 trade agreements and its strategic location.”
Faisalabad in Pakistan is another city coming under increasing demand due to Pakistan’s improving economy. “Faisalabad’s reputation as a major textile hub makes it an attractive option for commercial and industrial property investors,” says Mr Moini. Faisalabad boasts a strong road and rail infrastructure and a nearby international airport, which makes the city easily accessible to domestic and international investors.
If even frontier markets such as Pakistan can provide cause for optimism when it comes to the real estate market, then the signs are that the sector is in good shape.