Interest in the logistics/industrial sector is expected to remain firm across the Asia Pacific, while office markets are facing increased vacancy and reduced demand in the short term, Colliers International says.

The firm has released the second part of its Asia Pacific Real Estate: Still Good Value in a Changed World series of research reports, which are designed to provide a snapshot into the changes taking place across the various property markets that make up the region.

While the opening report compared property yields with yields on government bonds and equities, the latest research examines rental growth and discusses the company’s preferred real estate assets.

Colliers Asia Pacific Real Estate: Still Good Value in a Changed World Part 2 - At a glance:

• Singapore should achieve five-year average annual office rent growth of 3.3 per cent, with Bangalore and Melbourne not far behind.
• Singapore prime/Grade A offices look especially attractive with a yield of 3.9 per cent.
• Firm demand is driving the logistics/industrials sector across the region with yields ranging from 4.7 per cent to 5.9 per cent.
• Logistics/industrials markets with five-year average rent growth of over 2.5 per cent include North China, South China, East China and Seoul.

According to Colliers Managing Director for Capital Markets & Investment Services in Asia, Terence Tang, offices and logistics assets merit lower risk premiums as, over time, cap rates should stabilise or fall in office markets with higher rent growth potential, such as in Singapore, and should fall for logistics assets in general.

"Given widely varying prospects for income growth, it is even more important now for investors to understand the different risk/return profiles for different real estate sectors," he said.

According to the report, the supply of warehouses in most Tier 1 Chinese cities is increasing for the first time in several years, pushing up vacancy. 

The position of APAC urban office markets in the property cycle. Source: Colliers International

Elsewhere, the Colliers notes the demand for logistics assets in Greater Tokyo and the south and west of Seoul remains firm while in Australia, rising use of e-commerce and the lack of industrial space within big cities should fuel demand for industrial premises in close proximity to large population bases.

In the office sector, Colliers Executive Director for research in Asia, Andrew Haskins, said prospects for rent growth in APAC cities over the medium term were much brighter than over the short term.

"The developed office markets with the strongest rent growth potential over the next five years are Singapore, Melbourne and potentially Auckland, while among emerging market cities rent growth potential looks highest in Bangalore," he said

 “Compared to low or negative yields on government bonds and the possibility of falling dividend yields for equity markets, the yields offered by real estate assets in APAC markets look attractive. 

"Yields in the office sector in developed APAC markets range between 2.8 per cent for prime grade Hong Kong offices at the low end and 5.8 per cent for Auckland at the high end.

"Logistics/industrial assets in China offer yields ranging from 5.2 per cent to 5.9 per cent, while yields are also attractive in Seoul, Melbourne and Auckland.”

Click here to download part two of the report.

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