Asia Pac property investment transaction volume forecast revised down to $135b

The forecast was downgraded from $158b for 2011.

According to a release, the Asia Pacific all-property DTZ Fair Value IndexTM (FVI), which offers insight into the relative attractiveness or current pricing in commercial property markets, increased to 70 in Q2 2011, up from 65 in Q1 2011. This indicates that the region offers a wide range of attractive investment opportunities. Investors taking a medium to long term view can access several high yielding and high growth markets in the region at a discount relative to pricing elsewhere. The FVI scores across the office, industrial and retail sectors are similar to the all-property score, indicating consistent pricing across all sectors.

The number of HOT markets increased from 28 to 31 and the number of COLD markets fell from 10 to 8. Upgrades are concentrated in China and Australia. Six upgrades occurred in China, including the Guangzhou office and retail markets, where the outlook for capital growth has been revised up following continued strong buyer interest. The Shenzhen office market is also seeing strong growth, and DTZ expects strong rental growth to drive high returns over the next five years. In Australia, lower government bond yields have made property relatively more attractive for investors. Three markets have been upgraded from WARM to HOT, including the Brisbane retail market. This market took a big hit in Q1 with rents falling and yields moving out in response to the floods seen in January, but over time, we expect values to recover strongly.

The Tokyo office market has also been upgraded to HOT. It was hit hard by the 2008 downturn, and has felt the additional impact of renewed recession in the aftermath of the earthquake and tsunami. However, rents have now fallen by 35% since their peak in 2008 and DTZ sees scope for a substantial rebound over the next five years.

In India, the economy is showing signs of over-heating. Whilst the occupier market remains strong, higher inflation is eroding property returns and making markets less appealing for prospective investors. For example, the Hyderabad retail market has been downgraded from HOT to WARM due to a weaker rental growth outlook and a higher required return for property given rising bond yields.

Transaction volumes revised down
Notwithstanding forecasts for strong growth in rents and capital values across the region, DTZ’s investment transaction volume forecast for the region in 2011 has been revised down to $135 billion, from $158 billion. The downward revision comes as a result of policy initiatives in China to cool the property market, the earthquake and tsunami in Japan, and fears of a global economic slowdown, which is leading to reduced investment flows.

Tony McGough, Global Head of Forecasting & Strategy Research at DTZ, said: “The increase in the Asia Pacific DTZ Fair Value IndexTM score contributed to the rise in the global all-property score from 50 in Q1 2011 to 55 in Q2 2011. With a FVI score significantly higher than the global rating, Asia Pacific continues to compare favourably with other global regions. Investors are set to benefit from stronger rental growth in the region, associated with a more positive economic backdrop than in the United States or Europe.”

David Green-Morgan, Head of Asia Pacific Research at DTZ comments: “The latest Fair Value IndexTM score shows that Asia Pacific continues to offer great investment opportunities. In spite of this, our forecast for investment transaction volumes for 2011 has fallen, with activity adversely impacted by tighter regulations in China, the Japanese earthquake and fears for the global economy. However, we do expect a slight recovery in volumes in 2012 to $142 billion, as recovery in Japan takes hold and both domestic and foreign investors come to terms with the governmental measures in China.”