Melbourne has narrowly outstripped Singapore and Sydney as the best prospect in the Asia Pacific region for both investment and development, according to new data.
A real estate forecast jointly published by the Urban Land Institute (ULI) and PwC — called The Emerging Trends in Real Estate Asia Pacific 2019 — shows Melbourne’s ascent in the rankings is because its office supply pipeline is more constrained than in Sydney.
The report says that with vacancies shrinking rapidly, this is likely to provide upward momentum to rents in both locations.
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Melbourne was the top ranked in both investment and development, with experts saying the Victorian capital offered a constrained office supply pipeline, a good yield spread over the cost of debt and sovereign bonds, a deep, liquid, core market and good prospects for rental growth.
An improvement in Singapore’s city office market has seen the city come in second overall (second in investment, eighth in development).
In third place, Sydney (third in investment, third in development) remains near the top of the rankings for the same reasons as Melbourne.
The city is a favourite of global investors due to relatively high returns and as a safe-haven play.
Competition for assets has helped sustain pricing, while low vacancies and growing demand for space suggest rents will continue to rise.
Fourth-placed Tokyo (fourth in investment, fourth in development) was a bit of a surprise package after last year’s drop.
Experts say it probably reflects what has always made it a favourite for institutional buyers: cheap finance, attractive leverage, a good spread over interest rates, and a large stock of investment-grade assets.
The lack of reasonably priced core assets in Tokyo continues to push investors into regional Japan — and as a result Osaka (fifth in investment, sixth in development) was ranked fifth in this report.
With supply tight in both residential and office sectors, the city is now probably the top market outside the capital.
The Emerging Trends report, which is being released at a series of events across Asia over the next several weeks, provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area.
It is based on the opinions of 350 real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.
“The survey results for this year’s Emerging Trends in Real Estate Asia Pacific report shows that many investors in the region are looking to Australia’s largest cities for investment opportunities,” ULI’s Susan McDonald said.
“Both Melbourne and Sydney are core markets at heart but we are seeing that with the number of investable assets significantly lower than in Japan there is strong competition to place capital, especially with so many international players looking to buy.”
The report found that investors today are likely to be more site specific, working from the ground up rather than the top down.
Among the trends in the Asia Pacific region that the report cites are:
● Logistics facilities continue to be a go-to investment: The only sector where investor opinions were uniformly bullish, investment allocations to the sector have risen significantly in 2018.
● Co-living as a template for future housing: As cities are becoming denser and housing costs rise, more developers are looking to co-living as a way to pack more people into smaller areas.
● Capital flows remain strong: The ongoing build-up of liquidity across the Asia Pacific region continues to see huge amounts of money being sent cross-border to be invested in foreign real estate assets. Strong outflows in the region seem certain to continue, especially with new reserves from Japan likely to enter the mix in 2019.