Data from the Asia Pacific Commercial Property Monitor suggests that market sentiment improved across many centres in the first quarter of 2019.
A more benign view of macroeconomic risks appears to be supporting the improved outlook; rhetoric surrounding trade tensions appear to be moving towards a resolution, the Chinese economy has shown signs of benefiting from government support, and the global interest rate cycle appears to be on hold for the remainder of 2019.
However, risks still remain. As IMF Managing Director Christine Lagarde recently put it, the global economy
is entering a "precarious" stage of growth. Survey participants appear to have echoed this caution. Chart 1 shows the Occupier and Investment Sentiment Indicies*, a snapshot of current market performance (note that these series capture momentum in the market rather than levels of confidence).
The main cluster of Asia Pacific markets are grouped in an area indicating only slightly positive momentum. Exceptions to this include emerging markets benefiting from either above-trend economic growth (India) or
a shift in the global supply chain away from China (Vietnam). Markets where respondents noted upwards (Japan) or downwards (Malaysia, Indonesia) pressure exerted from the balance of supply and demand were also outliers. This is particularly evident in Chart 7, where a positive reading indicates demand growing at a faster pace than supply (in net balance terms) while a negative reading is indicative of the opposite.
Survey respondents continue to signal a "soft landing" for most commercial property markets. The market appears to be preparing for a period of belowtrend, but generally positive, growth in capital values and rents, rather than a sharp contraction.
Sean Ellison, Senior Economist, Asia Pacific, RICS
Although the slightly positive skew is indicative of a more optimistic outlook than the slightly negative skew exuded in the previous quarter, it is not necessarily signalling an inflection point in the cycle. Respondents to the survey generally made minimal adjustments to their headline capital value (Chart 3) and rent (Chart 4) forecasts for the next twelve months, though expectations do point to a moderate expansion. Hong Kong and Shanghai did see a slightly larger upwards revision to capital value and rent expectations in Q1, perhaps unsurprising given their relative exposure to the Chinese economy.
Despite the moderate improvement in conditions in Q1, most signals are still conducive with commercial property being in the later stages of the cycle. Chart 6 shows that a significant share of respondents are beginning to see their market being at some stage of a downturn, particularly those in Australia (Sydney, Melbourne, Brisbane) and China (Beijing, Shanghai); though emerging markets in South Asia and ASEAN are still seen to be in an upcycle. Meanwhile, Chart 5 shows that a majority of respondents in several markets view valuations being above fair value to some degree.
The results of the Q4 RICS Global Commercial Property Monitor indicate a substantial degree of dispersion across Asia-Pacific markets. Although looming economic risks appear to be weighing on sentiment in some regional markets, expectations for a continued expansion in rents and capital values remain firmly embedded in others.
With the region in the late stages of its economic cycle, it is inevitable that some caution has set in and tempering expectations. However, what is critically apparent is strengthening confidence in the region's emerging markets. Yield decompression is now less of a concern and we can expect investments to be sustained as investors continue to remain positive on the region's long-term structural fundamentals.
Sigrid Zialcita, Chief Executive Officer, APREA
Our global commercial property monitors are leading indicators of conditions in commercial property occupier and investor markets around the world. Our professionals' input makes this survey one of the leading indicators in the industry.
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Senior Economist, Asia Pacific
Sean is responsible for the RICS Economics team’s research into the Asia-Pacific property sector, identifying market risks to the sector and analysing economic events and their effects on real estate.