REIT ASIAPAC
OUTLOOK
“Uncertainty doesn’t necessarily translate to a
bear market as news flow can be both positive
and negative. The core expectation is that 2019
will be an eventful and volatile year.”
LOW VACANCY IN AUSTRALIA
Australia’s real estate sector has been in a rental up-cycle since
2016. Data from the Property Council of Australia showed
that office vacancy has been at new lows across the country,
and this has contributed to a record high rent of A$1,800 per
square meter per year being reached in Sydney. Both rental and
investment demand are spreading from core regions to non-
CBD areas in Sydney and Melbourne.
Osaka malls, Japan (Credit: mrsiraphol)
GROWTH SEEN FOR J-REITS IN
H O S P I TA L I T Y A N D R E TA I L
Australia’s rental growth rates may slow in the near future due
to an easing economy as well as increased supply of new offices
coming into the market, especially in Melbourne. Nonetheless,
we like Australia for its stable and steady growth market.
Other positive growth catalysts include the Tokyo Olympics
in 2020 and the Osaka World Expo in 2025. These events as
well as potential casino resort projects will contribute to the
development and refurbishment of Japan’s infrastructure
and provide a tailwind to tourist arrivals and retail spend. For
these reasons, we favour Japan REITs that are exposed to the
hospitality and retail sectors.
Hong Kong (Credit: Jimmy Chan)
Despite slowing economic growth, demand from existing firms
and new setups in the value-added manufacturing sector will
likely continue to rise, supporting industrial rents. As a result,
we favour REITs in this sector.
S I N G A P O R E A N D H O N G KO N G H I G H LY
EXPOSED TO TRADE TENSION
VO L AT I L I T Y G I V E S R I S E
TO ENTRY POINTS
Singapore and Hong Kong are highly exposed to global trade
and are unlikely to escape unscathed from the U.S.-China trade
tensions. Both markets will need to find new growth drivers in
the current challenging environment.
In Australia, both economic and inflation growth rates have been
slowing gradually. Nonetheless, growth has remained positive
with annualised exports expanding at 11%. Coupled with
government-led infrastructure development programmes and
falling unemployment, Australia’s economy continues to look
very healthy.
Trading and logistics, financial services, professional and
producer services, and tourism are the four pillar industries in
Hong Kong. Effects of the turbulence caused by the U.S.-China
trade row since early 2018 has started to appear in 3Q 2018
data. Imports and exports growth, retail sales and visitor arrivals
all recorded their lowest levels in recent quarters.
On balance, geopolitics which became a dominant factor
influencing market performance in 2018 will likely continue to
play an outsized role this year. Beyond financial market impacts,
which led to most markets closing the year in the red, trade
tensions have also resulted in worsening economic circumstances
and consequently property rent and capital values.
That said, equity and REIT markets have priced in some level
of uncertainty, and we expect a resolution to emerge between
the U.S. and China that would lift some of the palls that have
been cast. Uncertainty doesn’t necessarily translate to a bear
market as news flow can be both positive and negative. The core
expectation is that 2019 will be an eventful and volatile year.
Marina Bay Sands, Singapore (Credit: Kin Pastor)
AU S T R A L I A TOTA L VAC A N C Y FAC TO R ( % )
As an entrepôt, Hong Kong’s trade activities are likely to reduce
further in 2019. Due to a high-base effect and slower growth
in China, tourism is also likely to slow in the coming year. We
expect real GDP growth of 2.5%-2.7% in 2019-2020, a nearly
1% drop from that of 2018.
30.0
25.0
20.0
Rather than steering clear of markets, investors should adopt
a long-term investment horizon. Given the attractive valuations
available today, it could be a good entry point to deploy capital
into REITs and equities.
Our preferred Hong Kong-REITs are those holding office space
in non-CBD locations that cater to MNCs, professional service
firms and new tenants seeking low-cost solutions. We also like
REITs that are exposed to the suburban shopping mall segment
that serves domestic demand.
15.0
10.0
5.0
Total Vacancy Factor (%) Aus tralia CBD
Source: Property Council of Australia (as of 31 December 2018)
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Total Vacancy Factor (%) Sydney CB D
0.0
Total Vacancy Factor (%) Melbourne CBD
About the author: Victor Yeung is Admiral’s founding managing
partner and chief investment officer. Since 2013, he has been
responsible for our overall firm strategy and day-to-day management
of our funds. From 2007 to 2013, Victor was with LaSalle Investment
Management, where he managed the Asia Pacific portion of the
US$10 billion Global Real Estate Securities program and eventually
became its Managing Director, Asia Pacific Securities. He writes
regular columns for various news media in Hong Kong, Singapore
and Taiwan, and he is a co-host of a REIT commentary segment on
Hong Kong’s Now TV. He has written one English and three Chinese
books on REITs and other real estate topics.
Similar to Hong Kong, Singapore faces pressures from a less
open global trade landscape. We expect its economic growth
to slow gradually from above 3% in 2018 to 2.7% and 2.4%
in the following years. A soft housing market resulting from
government policy to rein in price appreciation, and the likelihood
of Singapore dollar rising further due to higher interest rates will
pose further downside risks.
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