Cover Story: International Consultants: Cautious optimism guides the markets

This article first appeared in City & Country, The Edge Malaysia Weekly, on December 24, 2018 - December 30, 2018.
Cover Story:   International Consultants: Cautious optimism guides the markets
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It has been a year of mixed fortunes for property markets across the globe, and next year is likely to be the same. While there is optimism in most Asian countries, the ongoing trade war between China and the US could threaten the growth of property markets in some countries, such as China and Vietnam. However, there may be opportunities amid the risks as some companies may consider shifting their production to Asia to avoid higher US tariffs.

In New Zealand and Australia, the outlook remains positive, driven by positive economic growth, but the outlook for London and New York is cloudy. This is partly driven by the messy Brexit negotiations in the UK and the trade war and a generally unfavourable view of President Donald Trump and his administration globally and in New York.

Read on for what global consultants have to say about the year that was and the opportunities and risks that lie ahead.


New York
Wei Min Tan
Licensed associate real estate broker, Castle Avenue Team at R New york

The Manhattan property market continued its weakness in 3Q2018. Prices per sq ft for condominiums declined 11% during this period, compared with the average price last year. The quarter was down 5% year on year.

This correction, which started in 2Q2017, is driven by the change in tax law for self-use buyers, global trade wars and rising interest rates. This weak market is despite a very strong US and New York City (NYC) economy. NYC’s jobs have increased 20% since 2009, unemployment is at a low 4.1% and consumer confidence is near an 18-year high. Basically, Manhattan is experiencing a dip or correction — the first since the Great Recession of 2009/10.

The decline during the 2009/10 recession lasted two years. Using the same gauge, I expect the Manhattan weakness to continue at least until the spring of 2019, if not longer. At best, next year will stabilise but I do not foresee the market surging.

The Brooklyn co-op market has performed well despite Manhattan’s weakness. Co-ops in Prospect Heights and Park Slope have been getting crowded open houses and multiple bid scenarios. In 3Q2018, the median price for a Brooklyn co-op increased 12% while the average price rose 11% year on year. Co-op prices in Brooklyn have set new records as buyers take advantage of lower Brooklyn prices, although, in certain areas, prices of Brooklyn co-ops are similar to Manhattan’s.

The Manhattan condominium market is obviously an opportunity buy. In addition to price declines, transaction volume was down 12% in 3Q. The core Manhattan market lies in the US$1 million to US$2.5 million price segment.

Anything above US$2.5 million is having an even tougher time. SoHo lofts, larger Manhattan apartments that are 2-bedroom and above represent the biggest bargain-hunting opportunities.

New development projects, previously non-negotiable on price and terms, are now open to negotiation. Some are even offering a booking down payment of only 10%, relative to the norm of 20% to 25%. This is a reflection of Manhattan’s soft market.

A global trade war would make foreign buyers nervous about investing in Manhattan. As it is, President Donald Trump does not have a favourable image globally. This, I believe, is partly due to the media’s negative bias on Trump. When the media portrays him unfavourably, the news affects what the world thinks of our government. The change in tax law and rising interest rates are inevitable and the market just needs time to accept the new environment. Also, Trump’s actions and the US economy would definitely impact the world’s perception of Manhattan.


Anuj Puri
Chairman of Anarock Property Consultants

Commercial real estate was the most buoyant sector in India last year and remained so in 2018. With the International Monetary Fund predicting 7.3% growth in India’s economy this year, this segment is gaining traction across major cities. Demand for Grade A office space is growing while vacancy levels are declining in prime locations.

This year also brought a ray of hope for the residential sector, with sales and new supply gradually picking up across the top seven cities of Bengaluru, National Capital Region, Mumbai Metropolitan Region, Chennai, Kolkata, Pune and Hyderabad. New launch supply as at 1H2018 increased by nearly 10% over the corresponding period last year. Housing sales have also risen more than 5% in 1H2018 compared with 1H2017.

On the retail front, nearly 85 malls are expected to come up across the country over the next five years. Of these, more than 30 new shopping malls, spanning nearly 14 million sq ft, are likely to come up in the top eight cities by 2020.

Considering the present trends in the realty market and Anarock’s data, we may see nearly a 15% to 18% increase in new residential launches in 1H2019 (96,000 to 98,600 units). Despite the teething problems of game-changing policies such as the Real Estate Regulatory Authority and Goods and Services Tax in 2017 and early this year, the realty market grew 10% year on year in 1H2018. However, the commercial market will be the biggest beneficiary of the country’s overall economic growth. Global and domestic companies will continue investing in India’s skilled labour and business-friendly investment climate by committing to large office spaces nationwide, which will invariably lead to more absorption.

Residential real estate is picking up and the trend is likely to continue next year. However, the commercial segment is likely to remain the most attractive for investors in 2019.

There is a huge variation in the rental yields of commercial and residential properties. Commercial properties, including Grade A office spaces in prime locations, yield 7% to 8% while the rental yield of residential properties, even in the best areas, is 2% to 3%. This is much lower than the best markets of the world, namely Indonesia, the Philippines and Thailand, to name a few. With increasing demand for Grade A office space, rents will most likely see a steady rise and the contractual terms will be far more structured.

All in all, the Indian real estate market will remain robust next year only if the overall macroeconomic environment remains favourable, as it is now. It will be interesting to see the response to the listing of the first real estate investment trust in India.


James Hodge
Associate director, CBRE cambodia

The Phnom Penh real estate market continued to forge ahead this year, with occupancy and rents in the office and retail sectors rising despite growing levels of new supply. Overall sales of condominiums slowed but remained robust for well-located and well-priced projects.

To date, the office sector has performed best this year, with demand increasing from all quarters and rents moving upwards. Occupancy reached levels not seen since modern supply first entered the market a decade ago, and newly completed properties are performing well.

Retail continues on an upward trajectory, propelled by steadily rising levels of disposable income. Supply, too, is growing substantially with much-needed well-planned and modern developments to diversify the consumer experience.

We anticipate an increased level of investment as we end the year and move into 2019. Development activity has picked up with clear diversification, particularly from local developers who are increasingly considering the commercial markets instead of focusing on the residential sector. Investors, including some large corporations, are showing interest in this market following the peaceful conclusion of the general election.

We anticipate a continuous surge of interest from local buyers for newly launched affordable housing projects. Luxury projects will primarily target foreign investors seeking higher yields than those available in their home markets. Commercial income-bearing assets are also likely to see a greater volume of transactions with investment sources diversifying and targeting asset classes that are widening to encompass more than land. Well-let office assets are likely to be an attractive asset class, with hospitality also performing well in the context of rapidly growing visitor numbers and improving infrastructure.

The large risk is geopolitical in nature, in particular hinging on the degree of pain felt by the country’s garment producers should the European Union cancel Cambodia’s trade preferences under the “Everything but Arms” initiative and any impact flowing from the US-China trade war should weaken sentiment from Chinese investors and enterprises active in the Southeast Asian markets. Domestic risks appear to be low, following the conclusion of Cambodia’s election and generally high confidence in the continued growth of the economy. However, oversupply is a threat in some sectors, particularly retail and mid-range condominiums.


Dave Chiou
Senior director of research, China, Colliers International

The overall market started off strong with all sectors carrying the momentum from last year. By May, concerns about the US-China trade war had started to seep into the market, causing a drop in investment sentiment as investors became increasingly cautious about the future.

The logistics sector in Shanghai remains one of the few areas that has seen limited impact so far, due to: (i) strong demand from e-commerce; (ii) a low vacancy rate of 8% with relatively mild supply increases of 10% to 15% per year, which should be easily absorbed by the market; and (iii) the demolition of illegal and unregistered warehouses leading to a 10% overall increase in logistics rents.

As a result of the lingering effects of the trade war and the government’s continued push for deleveraging, overall market demand is expected to be subdued next year. While the US and China have been trying to resolve their disputes, the likelihood of seeing a resolution before 1H2019 remains slim. Even if the disputes were to be resolved in the next two to three quarters, potential investors will remain on the sidelines for another one to two quarters before they actively resume their investment or expansion plans.

The logistics sector will be the bright spot next year, as vacancy rates will remain low and rents will continue on an upward trend. The government’s support for China’s first International Import Expo (CIIE), from Nov 5 to Nov 10, is a clear indication that the economy is transitioning into a more domestic consumption-driven market. Demand for logistics will continue to remain strong with more imported goods. The logistics sector will likely get an immediate boost from CIIE and the positive effects will trickle down to office and business parks in 2H2019.

The swing factors that could impact the property market include unexpected rate hikes and a prolonged trade war. We believe there is limited possibility of a rate hike next year, as China is trying to stimulate the economy to counter the negative effects of the trade war. On the flip side, the upside to the market includes more reserve requirement cuts injecting more money into the system and rate cuts to stimulate economic growth. In addition, a resolution to the trade war would improve market and investment sentiment, leading to an increase in real estate demand. Although domestic consumption now forms a larger slice of the economic pie, investments remain the biggest driver of growth, accounting for 42% to 45% of China’s overall gross domestic product.


Dang Phuong Hang
Managing director, CBRE vietnam

Strong gross domestic product growth of 6.98% for 9M2018 helped Vietnam affirm its position as one of the fastest growing economies in Asia. Its real estate market in general and in Ho Chi Minh City (HCMC) in particular, has had a good year so far.

Generally, the office sector has witnessed a significant increase in performance from the perspective of landlords, on the back of very limited new supply. Prime properties in the central business district with Grade A offices have seen rents rise more than 16% year on year, while vacancies are below 4%. E-commerce, co-working space and business centre companies emerged as important sources of demand for office space in HCMC.

After reaching a new high in terms of new supply in the past three years, new condominium supply, which is often considered the most dynamic sector of HCMC’s real estate market, moderated in 9M2018. Absorption rates of new projects, however, are still positive.

Many recent media discussions have centred on a possible recurrence of the so-called “10-year crisis cycle”. However, the steady factors that have underpinned the recent growth story of Vietnam’s real estate market — strong economic growth, a high level of foreign direct investment, relatively stable inflation and interest rates, rising income for the middle class, increasing number of tourist arrivals — are expected to remain intact next year.

The office sector, in particular, is expected to continue to see improving performance even though there will be some new buildings in non-CBD areas. The retail sector will see the reopening of a prime property, expansion of some high-profile non-CBD malls and proliferation of retail podiums (as part of residential developments). The condominium sector will continue to flourish as demand is still in place. Strong interest from foreign buyers is likely to continue, with many prime projects last year reaching the sales quota for foreigners, which is currently capped at 30% in one building.

The ongoing trade war between the US and China could have a spillover effect on Vietnam, as the country has integrated so deeply with the global supply chain that any reduction in global trade is going to have a negative impact on the country’s economy and, consequently, its real estate market. Having said that, this has led many global manufacturing companies, especially in the garment and textile industries, to consider moving their plants to Vietnam, which is evident from the rising number of enquiries that CBRE Vietnam’s industrial leasing team has received this year. This will be beneficial for the industrial real estate sector.

Steady economic growth and political stability were considered advantages that make Vietnam an attractive investment destination in recent years. However, the recent reshuffle of the government, nationally and at HCMC level, may affect the process of acquiring land or construction certificates for developers in the short term. Improving the infrastructure will play a pivotal role in further development of Vietnam’s real estate market. There is currently high expectation in HCMC about the upcoming Metro Line #1 (first Metro line ever in the city) and many projects close to the future stations will continue to be launched.


North China
Emily Cao
Head of research, north china, Colliers International

The Grade A office, prime retail and prime logistics sectors of the Beijing commercial property market performed well this year. The prime logistics market saw the fastest rental growth rate due to the government’s demolition of illegal warehouses starting at end-2017. Rents increased to 48.1 yuan per sq m per month at end-3Q2018, 11.8% higher than the rate at end-2017. However, rising rents led to a slight increase in the vacancy rate of 0.3% as at end-3Q2018. We expect the vacant space to be rapidly absorbed in the upcoming quarters, considering the undersupply situation in the Beijing prime logistics market.

Despite the postponement of several launches to next year, nearly 550,000 sq m of Grade A office supply entered the market in 2018, the highest in the past decade. The vacancy rate increased by only 2% as at end-3Q2018 and rent reached 327.3 yuan per sq m per month by end-3Q2018, a decline of 1.4% compared with end-2017. This is mainly due to two new projects in an emerging sub-market that entered the market with high vacancy rates and low rents. The vacancy rate in the established sub-market was largely stable or declined slightly, while rents were largely stable or showed increases.

Two new shopping malls with a total space of 151,000 sq m opened in the first three quarters of 2018. The good performance of existing projects and the newly launched projects pushed down the overall vacancy rate by 0.7% compared with end-2017. The overall ground floor rent increased slightly to 825 yuan per sq m per month by end-3Q2018, up 1.1% compared with end-2017.

The Grade A office market is expected to hit a supply peak next year, with more than one million sq m of new supply entering the market after the postponement of several projects this year. The vacancy rate is projected to increase to 15.6% by end-2019 from 10.3% in 3Q2018. The abundant supply will also push rents down by 0.3% year on year in 2019.

The prime retail market will have nearly 630,000 sq m of new supply next year, which is expected to push up the vacancy rate to 4.3% by end-2019. Considering that 71% of the new supply will be outside the 5th Ring Road, the average rent is likely to decline 1.3% year-on-year in 2019.

Close to 260,000 sq m of new supply will enter the prime logistics market. However, we expect the undersupply in the segment to help absorb new supply and existing vacant space quickly. As a result, we project that all the prime logistics projects on the market will be fully occupied by the end of next year, supporting the 4% year-on-year increase in rent in 2019.

The office and logistics sectors are the most attractive to investors. However, the lack of tradable projects has resulted in fewer transactions this year. Thus, business parks have became a hot segment in recent years as they can be considered alternative office properties. With investors paying more attention to business parks, transacted prices have increased rapidly, which compressed the investment yield. We expect this condition will continue next year.

Policy plays an important role in the development of Beijing’s commercial property market. The release of the Beijing City Master Place in September last year and a series of policies and regulations in 2018 are expected to change  future demand and supply. For example, the relocation of non-capital functions out of the Beijing core area is likely to cause a decline in future office supply.

With Beijing positioned as the national political centre, national cultural centre, international commutation centre and technological innovation centre, we expect the technology sector to develop more rapidly with the support of the government. The tenant structure of office projects also has the potential to change in the long term.

We expect the commercial property market to continue to see strong demand in 2019, supported by a faster economic growth rate.


New Zealand
Ian Little
Head of research, Bayleys Realty Group Ltd

It has been another year of positive economic growth for New Zealand. Underpinned business expansion and new business formation have seen the country’s commercial and industrial property sectors performing strongly over the course of this year.

High levels of tenant demand have, to date, kept pace with the new development pipeline despite a significant increase in construction activity. As a result, vacancy rates across most of the country’s major centres have held at historically low levels, placing upward pressure on rents.

The investment sector has also remained extremely active with particularly fierce competition for institutional grade assets. Local investors, including property syndication groups, have faced increased interest from international entities looking to secure a position within the New Zealand market. Over the last four to five years, about 50% of transactions of commercial property with a purchase price of over NZ$20 million have been to international investors. This competition for assets has resulted in further yield compression driving an upward bias to capital values.

All commercial property sectors have performed well over the last year, with MSCI data showing the total return from “All Property” to have been just below 10% in the year to June. The industrial sector, though, has generated the highest returns, with the latest available figures showing the annual return to have exceeded 12.5%. These figures reflect the fact that vacancies in the sector are particularly low across most of the country’s major centres. Average vacancy rates across Auckland, Hamilton, Tauranga and Wellington are below 4%, according to surveys conducted by Bayleys Research. In addition, the sector has attracted high levels of investor interest given that entry values are generally lower than those prevalent within the office sector.

Looking ahead to next year, the outlook remains positive. The economy is forecast to continue to grow at a robust rate. There are still few signs of inflation, which will allow the Reserve Bank of New Zealand to hold interest rates at the current historically low levels. The pressure on rents is likely to ease, particularly in the office sector, as a significant supply pipeline better balances supply with demand.

Once again, the industrial sector is likely to be favoured by investors. Vacancy rates look set to remain at low levels given that the majority of new developments are conducted on a design-and-build basis as opposed to speculatively. The sector also provides opportunities across a wide value range.

Any headwinds impacting the market are more likely to come from international factors, such as the possibility of an escalation in trade wars or increases in international interest rates.


Tom Bill
Partner, Head of London residential research, Knight Frank

It was a year of two different halves for the prime London residential market in 2018. During the first half, sales volume and pricing strengthened following a period marked by political uncertainty as well as tax changes. In the second half, prices and activity levels declined as Brexit negotiations moved towards their conclusion and political uncertainty intensified. However, there are signs that pent-up demand is forming, which should underpin future market activity.

There has been little consistency in the performance of prime London residential markets this year. However, needs-based buyers have driven demand across a range of markets. As prices have adjusted, buyers who need to move for family or work-related reasons have been more active in the market, which has benefited the prime central London markets, including Notting Hill and Chelsea. Public realm improvements and the arrival of high-quality, new-build developments have helped drive demand in markets such as Mayfair and Marylebone.

We expect modest price growth to return next year, based on the assumption that the UK and European Union will finalise a Brexit deal. The pent-up demand forming in the sales market could help drive any relief rally. Pricing across prime residential markets in London has now largely adjusted for the impact of higher transaction costs, so, once current levels of political uncertainty recede, activity levels should strengthen.

The trend for needs-driven buyers will continue into next year, which means markets with a higher proportion of those buyers will continue to benefit. It is also worth thinking beyond the political dimension, and factors such as infrastructure will continue to play an important role, with Crossrail due to open next year. The political backdrop will be the primary consideration over the next 12 months. In essence, the more distant the risk of a disorderly Brexit, the stronger the market performance should be.


Hong Kong
Denis Ma
Head of Research, JLL

The Hong Kong market started the year strongly but escalating trade tensions between the US and China, along with rising interest rates, have dampened market sentiment in the second half. Overall, the rental and investment markets will end the year higher but the housing market has likely peaked.

Looking at leasing markets, the office sector has posted the strongest gains. Supported by a tight vacancy environment and growing demand from co-working operators, Grade A office rents increased 6.2% in 9M2018. On the investment side, the housing market has yielded the highest returns with capital values of luxury properties gaining 12.8% in 9M2018. Housing prices are likely to retreat slightly in 4Q2018 but it is unlikely to affect the overall performance of the sector over the full year.

The local property market is likely to soften against an increasingly uncertain macro-environment as we head into 2019. The city’s red hot housing market, which posted the strongest gains this year, is likely to come under the most pressure. With the new vacancy tax, primary sales restrictions and a supply glut coming when market sentiment has deteriorated significantly, an increasing number of developers are now pricing new units to sell, which in turn is putting pressure on vendors in the secondary market to lower prices. Against this backdrop, we now forecast housing prices to drop about 15% next year.

Growth across the other sectors is also likely to slow as the downstream effects of the US-China trade war and a slowing mainland China economy weigh on merchandise trade flows and business sentiment in the city. In this regard, the rental and investment markets outside the residential sector are likely to be able to tread water and post marginal growth in 2019 but the risks to our forecast will be heavily skewed towards the downside.

With markets nearing their cyclical peaks, investors must focus on secular trends that will help generate returns over the longer term. In this regard, next year may present an opportunity to enter the market, with vendors more willing to negotiate.

In the retail sector, the development of new residential clusters and the enlarged consumer base is drawing investors towards neighbourhood malls. The growth of e-commerce and the completion of the Hong Kong-Zhuhai-Macao Bridge, along with the future addition of a third runway at Hong Kong International Airport will continue to support the demand for high-quality warehousing space. The broader industrial sector also has unique opportunities with the recent government announcement of the resumption of “revitalisation” policies aimed at promoting the higher alternative use of industrial buildings.

As an open economy, Hong Kong remains highly sensitive to developments in the global economy. A messy Brexit, deterioration in US-China relations, a rising interest rate environment and volatile equity markets can all significantly affect market sentiment, which in turn will put increasing downward pressure on the rental and investment markets.

Hong Kong’s property markets are already in the latter stages of the current cycle and downside risks now far outweigh those on the upside. Weaker demand arising from a slowing mainland China economy has the potential to not only affect the city’s important trading sector but also business sentiment, which will lead to a slowdown in demand for office space and retail space as tourist numbers moderate.


Ben Burston
Head of research and consulting, Knight Frank Australia

The Australian real estate market performed strongly this year, led by the office and industrial sectors. The residential sector, on the other hand, has experienced divergent performance with a cyclical correction in parts of the market, most notably a decline in average values in Sydney and Melbourne, while the top end of the market has seen continued growth.

Total returns across the commercial markets are likely to hit double digits for the fifth consecutive year, reflecting the strong performance of the office and industrial markets with total returns of around 14% and 12% respectively. Both markets have continued to benefit from yield compression as investors have sought out the depth, liquidity and long-term growth potential of the major Australian markets. The retail sector has also been solid, although it has not witnessed the same level of growth, with total returns of about 8%. The top performers have been Sydney and Melbourne offices, where an upsurge in demand has exposed a severe lack of supply, driving up rents and investment returns.

Australia’s economic growth momentum has provided a strong tailwind for real estate, and the outlook for next year is for sustained growth. More importantly, we anticipate a more even geographic pattern than in recent years, when Sydney and Melbourne have fared best.

Once more, we expect the strongest performance from the office and industrial sectors, which will benefit from ongoing employment growth on the demand side, while the supply side struggles to keep pace.

On the residential front, the market will remain uneven, with average values in Sydney and Melbourne continuing to adjust, while the prime market fares better and Brisbane and Perth benefit from improving economic growth.

In 2019, we expect the industrial market to perform best as it continues to benefit from the structural uplift in demand driven by evolving supply chains and the push to improve operational efficiency and shorten delivery times for the consumer.

The sector has effectively been rerated as a more secure investment proposition, just as it has become more critical for occupiers to modernise and expand their premises and locate themselves strategically adjacent to major transport hubs. We believe that this uplift in demand, and its consequent impact on the market, has yet to fully play out.

The growth outlook would receive a further boost if we see a continuation of the recent upward trend in global commodity prices. This has the potential to result in a more rapid recovery in Perth, Brisbane and Adelaide with an impact across all sectors. In addition, the large pipeline of public infrastructure investment across all states, and particularly New South Wales and Victoria, remains a key driver of growth and a source of new development opportunities.

While the outlook is positive overall, one risk is a potential slowing in the pace of growth of consumer spending reflecting an easing in the pace of employment growth and the flow-on impact of the decline in average house prices on consumer spending patterns. This could create a headwind for the retail sector and weigh on investors’ perception of the sector’s growth potential.


Desmond Sim
Head of research for Singapore and Southeast Asia, CBRE

As at 3Q2018, the Singapore economy had grown 2.2% year on year, slower than the 4.1% seen in the previous quarter. Growth was mainly supported by the finance and insurance, manufacturing and business services sectors. While Singapore braces itself for the impact of the US-China trade war, the negative spillover is likely to impact the economy in the latter part of this year and beyond.

Singapore has so far escaped relatively unscathed and the outlook for now still appears mostly positive. It also seems that Southeast Asia is likely to be the biggest beneficiary of this trade war, which could lead to opportunities opening up for Singapore — while some manufacturing companies plan to shift production to Southeast Asia, Singapore could benefit indirectly if their head offices are set up here.

The Grade A office market has already enjoyed a fifth consecutive quarter of rental growth. With the occupancy of the Grade A Core CBD market tightening, leasing demand looking relatively stable and the supply pipeline moderating, landlords have been encouraged to press on with higher rent expectations. This is expected to carry over the next two to three years, albeit at a more measured pace compared to the early part of the rental recovery cycle.

One notable trend is that landlords are actively engaging or incorporating flexible space concepts into their portfolios. Many landlords have either invested in an operator or created their own co-working brand.

However, the same cannot be said for the residential sector. For 1H2018, the Singapore residential price index enjoyed 7.4% growth, which encouraged strong investments in residential land for 1H2018. With property developers all vying to shore up their land bank, a total of S$13.33 billion, or 46 residential sites, were transacted from both private and public sources.

However, on July 6, new cooling measures were introduced to curtail the exuberance of the purchasers’ market and to curb developers’ appetite for land. There was an immediate impact — the pace of growth of the residential price index slowed to 0.5% quarter on quarter for 3Q2018.

In the capital markets, residential transactions accounted for the bulk of investment volume year to date. However, the slowdown in residential sales in 3Q2018 led total investment sales volume to decline 26.6% q-o-q to S$7.735 billion. Nonetheless, office assets continued to be sought after by investors. The overall office investment volume rose 24.2% q-o-q to S$1.308 billion in 3Q on the back of the improving occupier market as well as the diversion of investor interest to the commercial market in the light of the cooling measures impacting the residential sector.

Looking ahead, given sufficient market liquidity, investors are still exploring across geographies and asset classes as part of the portfolio selection process. However, investment sales volume will depend on the availability of assets. With short-term interest rates following the path of bond yields, this is expected to lead to rising interest rates. As a result, some core investors may find it challenging to deploy capital in Singapore as existing net property yields are challenging the yield spread above the risk-free rate.

Specialised assets, however, are gaining more attention. More boutique investors are eyeing shophouses for potential capital appreciation following asset enhancement initiatives.


Anton Sitorus
Director, Head of research and consultancy PT Property Connection Indonesia — in partnership with Savills

In general, the market saw a decline in performance compared with last year. Many factors contributed to the weakening demand — economic volatility, cautious corporate expansion, weak investor sentiment, property prices and over-valued rents in many popular areas — despite some relaxation in government policy and regulations.

In recurring income properties, such as office, retail and hotel, the market suffered from rising vacancies as demand cannot keep up with supply growth, especially in the office sector.

Sales volume in the strata apartment market shrank considerably, which is in line with fewer new launches on the back of slow take-up and tough competition.

In the Jakarta CBD Office, net demand up to 3Q2018 was slower year on year, resulting in vacancies surpassing 25%. Rents in premium and Grade A buildings contracted more than other segments. For non-CBD offices, net demand was slightly higher than last year, but more supply also caused vacancies on a high level of around 25%. Rents remained flat.

As for Jakarta shopping malls, limited retailer expansion continued to put pressure on demand and, accordingly, rent growth. High-end malls had to adjust their rents during this challenging period.

In the Greater Jakarta apartment market, sales dropped considerably with fewer project launches in Jakarta than last year. Developers are now focusing more on the outskirts, such as the Bodetabek region, as available land for new developments is plentiful and affordable — yet overall sales volume was relatively similar to last year’s. There were no changes in prices this year as buyers and investors perceived that prices had gone through the roof.

Modern logistics facilities are seeing a gradual growth in demand, supported by rising household consumption, which requires better, more efficient distribution of goods and services, as well as the growth of e-commerce.

Our forecast for 2019 is not different to this year’s. We anticipate a further decline in the first quarter due to the election that will be held in April. Both developers and buyers are likely to take a wait-and-see approach until after the election results before taking action to execute or delay their expansion plans.

The more challenging situation is also expected if the impact from the tightening global economy and other external factors are channelled through the property market, such as a weaker currency and rising interest rates. However, we expect good things to happen in 2H2019 in view of growing investor confidence post-election as a prelude to a structural recovery in 2020 and beyond.

In terms of market prospects, the apartment and logistics sectors will remain attractive are likely the safest for investors because fundamental demand in both sectors is relatively resilient, supported by strong end-user demand as opposed to the currently weak investor market.

The negative factors we are concerned with are land scarcity and availability, which is causing a high-priced environment. Red tape and unfriendly government regulations are still issues in some areas and can be counterproductive to the market.

However, there are positive factors: (i) infrastructure projects that will enhance the city and the region in the long run; (ii) some relaxation in government policies; and (iii) pent-up demand that has accumulated in the last four to five years.