China maintains top post in Asian real estate

Survey showed robust economic growth in China, India and Indonesia but global sentiment less upbeat for Q4 2011.

Commercial real estate in China and Hong Kong continued to perform strongly in the third quarter of the year according to the latest RICS Global Property Survey. However other key Asian markets such as Singapore and Malaysia have started to feel the impact of the worsening economic climate with sentiment towards occupier demand and rental expectations turning a little more negative.

In China, lending conditions have become increasingly restrictive to prevent the property markets overheating. The less accommodating policy environment is helping to stabilise the market across all sectors and has contributed to the problems being faced by some developers. Nevertheless, investment demand and transaction expectations are continuing to rise (with net balances of + 36 and +43 respectively). This is contributing to the steady increases in capital value expectations. In Hong Kong, the net balance of investor demand and transaction levels also remain in positive territory with expectations of capital value growth still outpacing global counterparts. By contrast, in Singapore and Malaysia, investor interest has weakened with the net balances for investor demand and transaction levels falling into negative territory, according to a RICS report.

Commenting on the survey, Chris Brooke, RICS Asia Chairman, says, “During the course of the third quarter of 2011 relatively high levels of activity continued to be seen within the commercial property sector in Asia from both occupiers and investors. Given the relatively strong economic conditions within the region during the period, occupiers within a variety of sectors continued to expand, particularly within countries demonstrating strong economic growth such as China, India and Indonesia.

“There was also a continued focus from investors upon deploying capital in Asia, with high volumes of commercial investment activity in both China and Japan, although this softened in certain markets due to increased constraints associated with the securing of financing associated with investment transactions. The broader global volatility and uncertainty experienced during the third quarter had a limited impact upon commercial property activity in Asia but is expected to be seen more clearly during the fourth quarter and going into 2012.”

While still more robust than most, China’s commercial property market lost some momentum this quarter. The pace of tenant demand moderated somewhat while available space once again moved into positive territory. That said, rising occupier demand still continues to far outstrip rising supply. Looking ahead, expectations for next quarter remain strongly positive, but the pace of expected growth seems to have slowed. Rental expectations eased from +73 to +65, capital value expectations from +71 to +56 and investment demand expectations from +42 to +36, quarter over quarter.

The Global Market Condition

The global real estate market has begun to feel the effects of the softer macro economic environment, finds the Q3 2011 RICS Global Commercial Property Survey. According to the report, more countries indicated fewer investment enquiries and development starts this quarter than in Q2 2011, while available space rose considerably across the countries surveyed. In addition, negative sentiment colours the global outlook for Q4 2011 with almost two-thirds of countries reporting negative rental and capital value expectations and nearly two-fifths reporting an expected decline in investment demand.

European debt crisis is not resolved till today

The commercial real estate market in Germany continues to perform relatively well despite the growing woes of its near neighbours. Indicators across the board remained positive for Q3. Expectations of rental and capital growth both posted net balance scores of +19. In contrast, the picture in the UK commercial property market remains a little more downbeat. Occupier demand fell back into negative territory as on the back of the slowing economy while the pace of available space picked up slightly.

Uncertainty hanging over the American economy

The tentative US recovery of the last two quarters seems to have stalled in Q3 2011, which may in part the increasing uncertainty hanging over the American economy. Occupier demand continues to rise, but at a slower pace than seen previously. Development starts this quarter became more negative while investment enquiries remained largely flat. One piece of good news for the real estate market in the US; investment demand is expected to remain positive.