Buyers still finding Singapore properties hot- DTZ

The latest all-property Fair Value Index revealed that while Singapore remains a hot market for investors, Hong Kong is not, moving from hot to cold in Q3.

Asia Pacific, however, continues to offer attractive returns to investors, with the index ranking the region at 65. This compares to a global FVI Q3 score of 63 and a score of 67 for Asia Pacific last quarter.

The DTZ Fair Value Index™ measures the attractiveness of commercial real estate markets around the world and was launched in Q2 2010 1 .

The biggest change from the previous quarter is in the Hong Kong office, retail and industrial markets, which have seen a significant uplift in capital values over the last quarter. The retail market saw a dramatic change during Q3 with the yield falling to a very low 2.0%.

David Green-Morgan, DTZ Head of Asia Pacific Research, comments: “At the current price level, Hong Kong markets look over-valued and all three commercial property sectors – office, retail and industrial - are now classified as COLD. In contrast, among other major markets, Singapore retains a HOT market in all three property sectors.”

While the overall index score has not moved significantly, classifications for ten markets have changed. A number of markets have become less attractive to investors. As well as the three Hong Kong markets moving from HOT to COLD, Tokyo offices has moved from HOT to WARM and Sydney retail has moved from WARM to COLD.

However, a number of markets are now more attractive to investors. Sydney industrials and Chennai offices have moved from WARM to HOT and Auckland offices and industrial, together with Guangzhou offices, have moved from COLD to WARM.

There has also been a slight shift in investment prospects across the sectors. The industrial sector, with a score of 65, buoyed by the strong recovery in exports, now offers more opportunities than the retail sector, which has an index score of 58. This is a reversal of last quarter’s position. However, offices remain the most attractive sector in Asia Pacific with an unchanged score of 70.

The outlook for the Asia Pacific office sector in Q3 has improved markedly in key locations such as Singapore and Bengaluru as the rapid economic revival continues to push up prime rents. Average prime rents are forecast to increase by 9% in 2010 and between 6 to 8% from 2011 to 2014.

However, capital value growth in Taiwan and Hong Kong is forecast to be modest in coming years due to a recent strong uplift in capital values. Returns in these locations will therefore be driven primarily by income growth.

Tony McGough, Global Head of DTZ Forecasting & Strategy Research, said: “Strong economic growth is feeding in to solid forecast rental growth in most markets. This implies a strong income led opportunity which contrasts sharply with most Western markets where we expect capital value recovery with weaker rental growth. Several Asian markets have recently seen rapid repricing and some overshooting of yield compression. However, overallthe Asia Pacific region remains attractively priced with a FVI score of 65.”