Knight Frank Asia Pacific Insights: May 2021

Australasia

Australian authorities keeping watch on residential market heating up

Investor lending is accelerating within the Australia residential market, following recent years of owner occupiers driving up residential prices. This is placing further pressure on the Reserve Bank of Australia (RBA) to push the cash rate target higher. Although over the past decade, it’s been noted, lenders adjusting their practices towards a more responsible lending regime via the Australian Prudential Regulation Authority (APRA) has been more effective in cooling rapidly rising markets. The landed property market on the periphery of each major city is currently in high demand, encouraged by the recently extended HomeBuilder grant, which was introduced to drive economic activity in 2020. At the other end of the spectrum, new high-end luxury apartments remain limited in response to local pent-up demand.

Economic rebound will help drive Australia’s office sector.

Quick to emerge from the pandemic induced downturn, Australia is now experiencing a strong economic recovery, with the latest data pointing to robust consumer spending, rapid employment growth and strong GDP growth. As a result of this strong recent performance, the International Monetary Fund (IMF) has revised up its 2021 growth forecast for Australia from 3.5% in January to 4.4% in April. The upgrade also reflects Australia’s successful containment of the pandemic and the ongoing vaccine roll-out helping the economy to reopen. With the public health concerns largely under control, the office leasing market will also start to recover. There is the potential for the market to benefit from the release of latent demand, although tenants will still be adopting a cautious approach given uncertainty over optimal workplace strategies post pandemic.

East Asia

South Korean Logistics attract major investment from ESR, CPPIB

Hong Kong-listed logistics player ESR and Canadian pension fund manager CPPIB are continuing to expend on their Korean logistics venture. The partners are planning to double the size of their investment vehicle to US$1 billion in equity. South Korea has been growing its warehousing and logistics capabilities, in keeping with the growth of its e-commerce market. The country is home to both a large online shopping consumer base, as well as being one of the hubs of goods that are sought after abroad. The market has an estimated 30% online retail penetration at the end of 2020, and year-on-year online retail growth of 20% in the same period. The robust growth in e-commerce will continue to fuel demand for high-quality logistics facilities in the coming years.

Capitaland acquires hyperscale data center in Shanghai

Singapore’s Capitaland group acquired its first hyperscale data center in Shanghai’s Minhang District for Rmb 3.66 billion. The four-building campus has a total GFA of 75,000 sqm with 55MW of capacity and current serves two of China’s largest telecom companies. Shanghai, besides Tokyo, is one of only two Gigawatt data center markets within the Asia-Pacific region and the growth of its data center sector is not expected to slow anytime soon with the onset of 5G, AI and big data driving the countries rapidly expanding digital economy.

Sun Hung Kai Properties bets big on Hong Kong and Guangzhou

Hong Kong’s largest developer, Sun Hung Kai Properties, spent HK$17 billion (US$2.2 billion) acquiring two sites recently – one in Hong Kong and one in Guangzhou, as it bets big on China’s greater bay area and future plans to turn the region into an economic and innovation hub. For its Hong Kong site in the northern New Territories (close to the Shenzhen border), the developer beat 9 others with a HK$8.614 billion bid which was 40% above market valuation and highlights the confident outlook the company has for Hong Kong’s housing market. For Guangzhou, it paid Rmb7.08 billion for the site which is strategically located next to Guangzhou’s South Railway Station which houses the high-speed rail link connecting the city to Hong Kong.

Southeast Asia

Bangkok housing developers pushing through tough times ahead of expected recovery in half a year.

The Bangkok housing market was hit by COVID-19 led low demands in H2 2020, and this is continuing into the first quarter of 2021. The market’s Q1 sentiment index of developers, tracked by Real Estate Information Center (REIC), is currently lower than the median for eight consecutive quarters as the health crisis continues to loom. Developers have now embarked on cost-saving measures to tide through the tough few months ahead. Despite that, the pipeline for new project launches is still intact, and developers are pushing ahead with recovery in the housing market expected within the next six months. The beginning of the vaccination drive and the extension of property tax incentives are playing a part in driving positive sentiments for Bangkok at the moment.

Microsoft to invest US$1b in Malaysia to set up data centers.

Over the next five years, Microsoft Corporation is aiming to invest US$1 billion into Malaysia. This comes as part of a new public-private-partnership with the local government and companies. The program seeks to establish Microsoft’s first “datacentre region”, consisting of multiple data centres in Malaysia to manage data from various countries. Malaysia saw the lowest levels of foreign direct investments, dipping 68% last year. The Microsoft venture into the southeast Asian market will inject between RM12 to 15 billion, along with other benefits such as a Microsoft program that will train up to a million Malaysian in acquiring digital skills by the end of 2023. As internet consumption and digital services ramp up in demand, the demand for data center assets will continue to grow in tandem over the next few years.

South Asia

Second COVID-19 wave to dampen India’s office sentiments, but long-term prospects remain favorable.

With a second wave of COVID-19 hitting India, the recovery in office leasing is likely to be delayed. The loss of near-term major returns to offices, potential leases may be further deferred while occupiers wait out the public health crisis. Despite that, there are long-term factors in place that are holding up sentiments in the market. As captured in the Knight Frank – FICCI – NAREDCO Real estate sentiment index Q1 2021, even as the mood has turned somber for the near term, there is cautious optimism. 58% of the survey respondents expect office leasing activity to increase or remain stable in the next six months and 44% of the survey respondents expect office rentals to remain steady over the next six months.

Blackstone to acquire massive warehouse portfolio, betting on growing e-commerce sector.

The US investment titan, Blackstone Group Inc., is planning a US$720 purchase of existing warehouse sheds and development sites in India. The deal will amount to a potential 21.5 million sqft of industrial space across the country. Similar to most other developing economies across the globe, its relatively low online-retail penetration rates is going to present huge growth potentials for the country, as the COVID-19 pandemic accelerates e-commerce trends. The entry of major international online retailers such as Amazon and Flipkart is also adding more fuel to the sector’s growth. While Blackstone is amassing its portfolio in the region, other international investors are also vying for a piece of the growing pie.