Asia Pacific cities are some of the fastest growing real estate markets in the world, but they have yet to catch up with their European and North American counterparts when it comes to intensity of investment.
JLL's latest Investment Intensity Index – which compares the volume of direct commercial real estate investment in a city over a three-year period relative to its economic size – reveals that of the top 30 ranked cities, only four are in Asia Pacific: Sydney (eighth), Melbourne (16th), Hong Kong (28th) and Tokyo (30th).
This means that while places like Bangalore, Ho Chi Minh City and Shanghai are racing ahead in their speed of development as real estate markets, they still have room to grow when it comes to attracting investment proportionate to their gross domestic product (GDP).
"Although the emerging cities of Asia Pacific are attracting an ever greater share of global real estate investment, our latest index shows there is some way to go before they punch their weight in terms of investment intensity," says Dr Megan Walters, Head of Research, Asia Pacific, JLL. "However, the balance is starting to shift. What we're seeing is that real estate investors are looking more and more to developing cities to satisfy their diversification requirements, with an estimated 60 per cent of the global office development pipeline until 2020 projected to come from emerging markets."
While offering huge investment potential, the report reveals that emerging world cities will need to boost transparency, improve regulatory oversight and build robust financial platforms to attract real estate investors in the long-term.
Chinese cities' increasing influence
"Shanghai and Beijing have been identified as some of the world's fastest growing city economies and are making their mark globally as real estate investment destinations," says Joe Zhou, Head of Research, China, JLL. "These cities sit consistently in the top 30 in terms of absolute real estate investment volumes, though they have not yet broken into the top tier of the Investment Intensity Index. This highlights an immense opportunity for growth."
Several other 'Emerging World Cities' have yet to realise their full potential as real estate investor destinations due to issues ranging from regulatory transparency, infrastructure challenges, market restrictions and ownership styles to economic and political volatility. These include cities such as Manila and Jakarta as well as Mumbai, Delhi and Bangalore, where investors frequently look to real estate development and debt to gain exposure.
However, a number of emerging megacities – such as Kuala Lumpur and Bangkok – are generating higher investor interest. These cities are set to draw increased investment activity in the coming years as the quality of stock and transparency improves.
Meanwhile Australia's largest cities continue to register robust investor interest, with Sydney and Melbourne both among the Top 30 in the Investment Intensity Index. High levels of transparency, sustainability and buoyant economies support investor interest in these cities, which are poised to register some of the world's highest office rental and capital value growth in 2017.
For more information on JLL's Investment Intensity Index 2017, visit here.
JLL's Investment Intensity Index compares the volume of direct commercial real estate investment in a city over a three-year period relative to the city's current economic size, measured by GDP. The Index provides an approximate measure of real estate market liquidity, as well as a useful barometer of a city's overall economic health, highlighting cities that are punching above their weight in terms of attracting real estate investment.
Covering 150 cities around the world, the 2017 edition identifies the 30 cities that top the ranking for real estate investment relative to their economic size. It also reveals the top cities for cross-border investment intensity, identify the leading 'Emerging World Cities' and provide a breakdown of which cities are attracting the most intensive investment activity in the office, retail, hotel and logistics sectors.
Logos, product and company names mentioned are the property of their respective owners.