Introduction to Colliers APAC 2018 Outlook: Top Ten Trends for Asia, Australia, New Zealand
Colliers International is delighted to present you with our 2018 Asia Pacific Property Outlook, which unveils our insights and predictions for property across Asia, Australia and New Zealand over the coming year.
In contrast to reports in the past, which included separate outlooks for countries and market segments, this year’s report is a forward-looking review of key property themes across the region. While we present ten key predictions for Asia, Australia and New Zealand in turn, this introduction highlights five themes common to the whole region.
1. Strong economic growth set to persist
Global real GDP growth in 2017 reached its highest level since 2010, and 2018 should be better still. China, Japan, South Korea, Hong Kong and Singapore all saw growth accelerate in 2017, with only mild slowdowns likely in 2018; momentum in India is now also rebounding sharply. Australia is seeing not only firm growth, but favourable demographic trends, notably in New South Wales and Victoria. However, employment growth is positive in all Australian states; and the IMF expects Australia’s five-year population growth rate to be double the average of the world’s top 30 economies.
2. Interest rates set to stay low
US interest rates are set to continue rising, putting upward pressure on benchmark interest rates in Asia. Nonetheless, we expect Hong Kong to enjoy negative real (i.e. inflation-adjusted) interest rates until early 2020, with real interest rates also set to stay low or even fall in Japan, Singapore, India and China. In Australia, interest rates are at record lows, and we do not expect the RBA to raise rates until 2019. In New Zealand, likewise, we think that the official cash rate will not go up until late 2018 at the earliest.
3. Room for further yield compression
Investment property transaction volumes have been strong in key Asian centres, above all Hong Kong and Singapore, with newer markets like India picking up. With demand very firm, deal volumes may well rise again in 2018, despite limited supply of quality buildings for sale and low yield spreads versus bonds in Tier 1 Chinese cities. If so, capital values should rise and yields fall still further. In Australia, demand for commercial property should remain strong from global property, pension and sovereign wealth funds, including Chinese, Japanese and German investors. In New Zealand too, shortage of stock for sale coupled with firm demand should outweigh slightly higher debt costs, driving yields lower.
4. Office rents in big cities likely to rise or be stable
Driven by firm demand from existing and new occupier sectors including finance, technology and flexible workspace operators, we expect prime grade office rents to rise further in 2018 in Hong Kong, Singapore and tech-driven cities in India. In large Chinese cities, rents should be stable or drop slightly due to high new supply; however, prospects for rent growth, net absorption and vacancy are brighter than we had assumed until recently. In Sydney and Melbourne, vacancy is low and demand is firm. Rents are rising despite the prospect of new supply in Melbourne from 2019 and in Sydney from 2020.
5. Industrial property likely to shine across APAC
Higher trade flows and e-commerce should continue driving industrial and logistics property in China, Hong Kong, Singapore and India, with industrial property emerging as a key organised asset class across Asia. In Australia, new entrants to the e-commerce sector should increase demand for well-located industrial space. In New Zealand, likewise, we expect increasing online retail activity to boost demand for warehousing from retail logistics providers.
We look forward to providing you with further valuable insights, opportunities and advice to meet the challenges in your enterprise and accelerate your success. Please contact any of our Research teams in Asia, Australia or New Zealand and see how else we can help you.
Chief Executive Officer