Tight office market to drive rents skyward
The Sydney and Melbourne office markets are set to be the top performers in commercial real estate across the Asia-Pacific this year, given the resilient local economy, according to a report from the Britain-based Standard Life.
The amount of office space set to come online in the two cities between now and 2019 is considerably lower than in other markets across the Asia-Pacific region, the report says, so demand will outstrip supply, pushing up rents.
Despite the investment house’s upbeat view on Australia, it did sound a note of caution about an oversupply of industrial space, which could lead to muted rental growth.
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“Australia remains our preferred market in Asia-Pacific,” Standard Life head of real estate research and strategy Anne Breen says.
“While a fair amount of uncertainty hangs over the global economy, investors continue to look for sustainable income and are re-evaluating risk.”
Standard Life is upbeat on the overall outlook for commercial real estate in the Asia-Pacific, given low interest rates and weaker local currencies due to the strong US dollar, but warned performance could be uneven. A substantial amount of office space is set to come online in major Chinese cities while demand weakens in parts of mainland China, Standard Life says.
Australia remains our preferred market in Asia-Pacific
The report also tips Perth offices to underperform, as demand remains weak following the mining bust, although the amount of new stock set to be added to an already well supplied market is low compared to regional peers.
Standard Life is downbeat on Hong Kong’s and Singapore’s office and retail space, but says the Singapore office market is nearing the bottom and could start to recover this year or early next.
The Tokyo office market is peaking, with healthy but lower returns tipped for this year, while Seoul could be a surprise bright spot for commercial real estate assets.
Globally, real estate fundamentals remain sound, given the pace of rising bond yields should remain measured, construction has been muted and vacancy rates are at historic lows in most asset classes and countries, Standard Life says.
