The broad-based recovery in the global economy and a generally favorable interest rate environment are creating opportunities for US-based real estate investors interested in the Asian markets.
In a report issued by ING Real Estate notes that the Asian real estate securities markets continue to mature, with both commercial mortgage-backed securities (CMBS) and real estate investment trusts (REITs) offering attractive spreads compared to US REITs and Australian LPTs. There has been a widespread recovery in the office market, while retail continues as the best performing property type, supported by the return of domestic demand and increased tourism.
“Asia has benefited broadly from the upturn in the global economy,” stated Will McIntosh, global head of research at ING Real Estate Investment Management. “We are also seeing a significant contribution from growing intra-region trade, supplementing the traditionally strong export-driven industries.”
ING Real Estate noted that rising oil prices and a slowdown in the economies of the U.S. and China are likely to lead to more moderate growth for the region in 2005. Increased interest rates in China and a move by the government of South Korea to limit housing speculation may further impact returns within those markets.
Regionally, the outlook for Shanghai and Taipei remains strong across nearly all major property types, the report concludes. Hong Kong posted double-digit growth in the second quarter of 2004, with third quarter prime retail rents jumping 70 percent compared to the same period in 2003. Throughout China, total retail rents increased by approximately 12% year-over-year. In Shanghai, absorption of new residential properties exceeded new supply by about 35%, resulting in a strong increase in housing prices. Broad weakness was seen in both Manila and Jakarta across nearly every property type.
Other significant recommended allocations include Shanghai retail for lower risk portfolios (15%) and Shanghai and Hong Kong office (10%) for higher risk portfolios. The firm is also upbeat on the outlook for Tokyo office and retail and the Seoul office markets.
“An improving regional and global economy continues to underline broad strength in many Asian real estate markets,” said McIntosh. “We believe the region continues to offer attractive opportunities to global real estate investors.”