The Q3 2018 results of the RICS Global Commercial Property Monitor indicate that mounting macroeconomic risks are beginning to weigh on commercial property markets in Asia Pacific. However, despite some near-term uncertainty, the outlook over the next 12 months remains firm across most markets in the region.
The Occupier Sentiment Index (OSI) and Investment Sentiment Index (ISI), amalgamated measures of occupier and investment market sentiment, indicated that momentum slowed across most Asia-Pacific property markets. However, the outlook remains positive and continues to point towards a “soft landing” rather than a sharp pullback.
Mounting near-term macro risks appeared to have some impact on sentiment in Hong Kong and Singapore, two of the most exposed markets to Sino-US trade tensions and US central bank tightening. These two markets saw the largest drop in OSI and ISI across Asia Pacific. Interestingly, sentiment in Chinese commercial property markets saw little change from the previous quarter. Although conditions slipped slightly in Shanghai, firm expectations for rent and capital value growth in Greater Bay Area cities, such as Guangzhou, helped to bolster sentiment.
Although sentiment in Australia and New Zealand moderated in Q3, both rents and capital values are expected to increase over the next twelve months. However, as credit conditions tighten in Australia, and markets such as Sydney, Melbourne and Auckland are increasingly being viewed as expensive, commercial property momentum in Australasia is expected to slow throughout 2019.
Meanwhile, sentiment surrounding Indian commercial property remains robust, and is generally seen as being more fairly valued than most global markets. Perhaps as a result of this, most respondents expect that the current upcycle in Indian commercial property still has some legs left to run.
The performance of some of the emerging ASEAN markets is likely to be more nuanced. A mismatch between supply and demand continues to be a drag on Malaysian commercial markets. This is the case to some extent for Indonesian markets as well, though more so for the office segment of the market as capital values and rents on retail properties in Jakarta are expected to increase over the next 12 months.
Respondents to the survey also maintained a relatively bullish outlook for markets like Bangkok and Ho Chi Minh City. Though with macro risks on the horizon building, these expectations could too begin to moderate in the coming quarters.
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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.