Any belief that the Asia Pacific region was going to be de-coupled from the rest of the world as the global financial crisis hit was amiss. Everything fell in almost perfect harmony, with no one in the world immune. And no industry is this more felt than the property market, where rents peaked in 2007 and 2008, and troughed dramatically in the middle of 2009.
In the recent Asia CEO Forum that gathered top-level business executives and key decision-makers, Alastair Hughes, CEO-Asia Pacific of Jones Lang LaSalle Leechiu, presented a comprehensive report on the property market trends documented throughout the Asia Pacific region. “It’s quite difficult to sum up whether Asia Pacific is a boom or a bust,” shares Hughes, “because extremely different things are happening in each market.”
A dynamic Asian region
Hughes’ report reveals Hong Kong rents have sprung back up, increasing at 60 percent since 2009 when it was at the bottom of the market. “The reason is that, one, Chinese companies see Hong Kong as the gateway to the rest of the world,” begins Hughes. “And two, foreign companies see Hong Kong as a gateway to China. The little rock with very little supply—so there’s lots of demand, very little supply, and rents have grown very, very quickly.”
On the other extreme, however, is Tokyo where rents have fallen quite dramatically since its peak. “They haven’t really begun to recover at all,” shares Hughes. “We thought they were going to nudge up a little bit this year, but then the earthquake hit and they’re still falling. There’s quite a significant difference and such a huge range of different rental dynamics going on in each of these Asian markets.”
Looking forward, however, Hughes states a couple of factors that will drive rent forward. “One is supply, because there’s quite a lot of construction going on,” he states, “and the other is demand, which is largely driven by economic growth. There’s a very strong correlation between what’s going on in the economy of a market and what happens to space demand. And for this, I feel very privileged to be in this part of the world. Because this is the place to be right now.”
Increasing domestic demand across Asia
Whereas Europe and the United States are forecasted to grow at single-digit rates between 2011 and 2012, the main markets in Asia Pacific are experiencing economic growth that is much higher. “In some markets, rents are going to come off a little bit much next year,” Hughes shares.
Economic growth in China, he adds, will enable the superpower to grow ahead of its neighbors. The economic house of Japan is also predicted to bounce back in the next two years. The bottom line: Asia Pacific is growing much faster than the west, which consequently spells tenant demand for space increasing.
Even with talks of a sequel to 2007’s Global Financial Crisis happening soon, Hughes asserts that while it will have an effect in Asia Pacific in terms of corporate demand for office space falling, “Asian companies will continue to grow, more so this time than the last because of increase in domestic demand,” he pronounces. “Multinational corporations would also want to get in on the growth in Asia Pacific and they want to chase cost efficiencies by off-shoring to this region,” he says.
In addition, the high net worth population in Asia Pacific has dramatically multiplied over the last few years. “High net worth wealth is up 31 percent to $9.7 trillion; there are now 332 billionaires in Asia Pacific compared to only 79 in 2001; and these are now becoming our clients, buying big chunks of real estate in the capital centers of Asia Pacific,” discloses Hughes.
An explosive Philippine property market
Details that emerged about the Philippine property market were vast and captivating as well. According to IDavid Leechiu, Jones Lang LaSalle Leechiu Country Manager – Philippines, office space take-up in the Philippines is now highest in the region at about 300,000 square meters for Metro Manila versus 150,000 sq.m. for all of Singapore.
“We’ve built about 20 business districts in the last 10 years,” puts in Leechiu, adding that it is an unprecedented level of development, “one we’ve never had in our hundred-year history.”
Crisis or no crisis, the demand for office space will carry on, mostly because the office market is quite supply sensitive. “Rents rose 30 to 40 percent in 2010, and it’s going to be quite up in the next 9 to 12 months because there’s no stock in the market today,” Leechiu shares.
While there is quite a healthy pipeline of office space in the next two years, most of the stocks are already pre-committed six months before completion. “It’s mainly because of the amount of demand coming from the BPO industry,” puts in Leechiu. “We see a heightened sense of urgency for western companies to come to the Philippines,” he says, “because funnily enough—and fortunately for the Philippines—it has become part of an anti-crisis solution for many multinationals. Although this comes predominantly from the U.S., we’re seeing traffic from Australia, Hong Kong and Singapore as well.”
On top of rising office property values, the residential sector is looking good as well. “What’s happening in the residential sector is that since the global financial crisis, land values in enclosed villages have gone up by as much as a hundred percent in the last two years,” Leechiu reports.
Filipino capital parked in investment funds have now been repatriated, with a big chunk of the money now in villages like Forbes Park, Urdaneta Village and Dasmariñas Village, whose values have increased from P50,000 to P60,000 per square meter in 2007 to around P130,000 per square meter today. “As a consequence,” Leechiu injects, “all other enclosed villages from as far up as Ayala Heights in QC all the way down to Ayala Alabang have gone up 70 to 200 percent of its value.”
According to Leechiu, if you add up the total number of households in these villages, as well as those living in the luxury condominiums in Rockwell, Makati and Bonifacio Global City, “you’ll get 30,000 households, which represent 210,000 individuals who run this country,” injects Leechiu. “These,” he says, “are the expats, top executives, local management and all the Taipans. That’s how small the number is. And as we grow the middle class, the upper class will grow as well because they own everything the middle class buys. This means we are creating new wealth in the country, and that’s going to translate to an even greater scarcity value for many of the country’s residential assets.”