The latest edition of JLL’s Investment Intensity Index shows that European and North American cities continue to dominate investment intensity despite growing real estate investment in Asia Pacific cities.
Only four Asia Pacific cities made it to the top 30 listed in the report: Sydney (8th), Melbourne (16th), Hong Kong (28th) and Tokyo (30th).
The top five destinations for real estate capital are Oslo, London, Munich, Edinburgh and Silicon Valley. New World Cities—characterised as mid-sized cities excelling in high-tech and high-value sectors, with robust infrastructure, a favourable quality of life and transparent business practices—accounted for 21 of the top 30 cities in the Index.
The index, which compares the volume of direct commercial real estate investment in a city over a three-year period relative to its economic size, suggests that there is plenty of room for Asia Pacific to catch up with its European and North American counterparts to attract 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.
The under representation of Asian cities, in particular, in the top 30 is due to the dominance of local investors in most markets, core assets being tightly-held by landlords and institutional investment still at a relatively early stage in some markets.
Dr. Walters notes that the balance is starting to shift. “We’re seeing investors looking more and more towards developing cities to satisfy their diversification requirements, with an estimated 60 percent of the global office development pipeline until 2020 projected to come from emerging markets,” she explains.
Emerging APAC cities to watch out for
Chinese cities are primed to get an investment boost, having built up a critical mass of activity.
“Shanghai and Beijing have been identified as two 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 consistently sit in the top 30 in terms of absolute real estate investment volumes; though have not yet broken into the top tier of our Investment Intensity Index, highlighting an immense opportunity for growth.”
Other Emerging World Cities in Asia Pacific are likely to see more real estate investment in the next few years due to an improvement in quality of stock and transparency. Ho Chi Minh City and Kuala Lumpur, in particular, are currently attracting the highest amount of investment into construction.
The Index, which is also broken down by sector, points out that investment activity is significantly tilted towards a single property sector in some Asia Pacific cities. For instance, APAC cities feature strongly in the Logistics Investment Intensity index with Sydney at the top while Auckland, Perth, Brisbane, Adelaide, Hong Kong, Taipei, Fukuoka and Singapore are all represented in the Top 20.
Dr. Megan Walters
Head of Research, Asia Pacific, JLL