Most Asian markets have slowed down over recent years, but growth in China and India is still high, and certain cities continue to grow fast, notably in India and South China. Bangalore and Hyderabad in India, in fact, should be Asia's fastest and third fastest-growing cities, respectively, over 2020-24, while in China, Shenzhen and Guangzhou should also outperform both the national and Asia city averages, says Colliers Research.
In Asia, growth is increasingly being driven by successful cities or regions within countries. Two of Asia's three fastest-growing cities are Bangalore and Hyderabad in southern India. According to Oxford Economics, Bangalore should achieve average annual real GDP growth of 9.9% over 2020-2024-far above aggregate growth for India of 6.8% and average growth for Asian cities of 3.9% over the same period. The second fastest-growing Asian city should be Ho Chi Minh City on 8.1%, with Hyderabad in third place on 7.8%.
With occupier demand firm, Bangalore, Manila and Singapore should see average rent growth of over 3% p.a. over 3-5 years, despite recent softening in Singapore. Bangalore is Asia's fastest-growing city, which Colliers sees as the number 1 location for technology tenants, and expects 4.0% rent growth in 2020, and 3.2% on average over 2019-2024.
"Among Asian emerging markets, India has been pushing interest rates downwards. Persistent very low or negative real interest rates in Asia should help lift confidence among major occupiers to recover after a generally difficult 2019. At the same time, property investors and developers can expect funding costs to remain very modest. This situation should support demand for investment in property in most Asian markets," says Sankey Prasad, Managing Director and Chairman at Colliers International India.
Office sector: Top locations remain resilient
In the office sector, while performance and outlook vary widely across markets, Hong Kong, Singapore, Tokyo and Shanghai are likely to be the top locations in Asia for occupiers on socio-economic, property and human factors. Looking ahead, Bangalore, Manila and Singapore should see average rent growth of over 3% over three to five years, though Singapore faces consolidation over 2020-2021.
Investment markets: Big city grit
Over the first nine months of 2019, aggregate investment volume in Asian property markets declined by 13%, from $100.5 billion to $87.3 billion. The ten largest urban property markets showed a smaller decline of 3%, from $71.3 billion to $69.3 billion. This outcome is seen as surprisingly robust in the light of general economic slowdown, increased uncertainty from US-China trade tensions, and the protests in Hong Kong.
In 2018, investment property transaction volume totalled a record high of $133.9 billion. "For 2019, we now assume that total investment dropped by 10%, to $120.5 billion. We assume that investment volume in the ten largest urban markets declined by a smaller 2-5%. For 2020, we anticipate economic weakness but not full recession and persistent very low interest rates. We believe that investment activity can continue to advance, and predict a 7% increase to $129.0 billion," states the Colliers report.
Logistics/industrial sector and data centres: Higher returns, but correct strategies vital
In India, Colliers recommends developers to continue to expand in logistics by collaborating with corporate and government bodies owning land banks. Demand for data centres is surging due to the spread of cloud computing and 5G mobile, notably in China. Much investment is targeting this area despite high barriers to entry, but investors require adequate expertise to succeed.
Flexible workspaces: Reinvention key to expansion
Over 2017-2019, the two key sectors driving growth in leasing demand in Asia were technology/media and flexible workspace (i.e. operators of coworking spaces and serviced offices). Flexible workspace has actually grown fastest of all. "We do not expect reduced demand from flexible workspace operators to constitute a significant new downward force on absorption of office space across Asia, though there may well be pressures in certain markets. Looking forward, we expect greater collaboration between landlords and flexible workspace operators. This will help enhance the tenant experience through 'amenitisation' and create an ideal environment for future growth in this segment," says the report.