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February 22, 2016

Real estate markets in Asia Pacific recorded increased levels of take up of office space in 2015 with net absorption up 33 percent on the previous year. This data comes during a week where a read of the papers shows falling oil prices, currency volatility and the IMF downgrading global growth. Also this week at the World Economic Forum at Davos, we launched our latest JLL research on our City Momentum Index highlighting what propels cities’ growth. How do we reconcile the mixed outlook and what does it mean for us in 2016?

Let’s start with the macro and the IMF report, which shows their estimates for global growth are now 3.1 percent for 2015, 3.4 percent for 2016 and 3.6 percent for 2017. This trims 0.2 percent from the original 2016 global and US forecasts on several risks; concern the effect China will have on other economies as it rebalances towards consumption; lower oil and commodity prices; and a gradual tightening of monetary policy in the US whilst several other major advanced economy central banks continue to ease monetary policy, in the region notably Japan. China’s growth is broadly as expected and the IMF did not change their outlook, retaining their forecast at 6.3 percent for 2016. The India forecast at 7.5 percent and Japan at 1.0 percent also stayed the same. The big downgrades by the IMF were for Brazil and Russia now expected to contract at -3.5 percent and -1.0 percent respectively in 2016. In our region ASEAN 6 had 0.1 percent trimmed leaving expected growth in 2016 at 4.8 percent, still an increase on 4.7 percent growth in 2015.

Growth here as viewed by the IMF is proceeding as expected, which leads many to ask- should we believe the data?

There are two metrics that JLL can offer to the debate on economic conditions- the amount of office space taken up by occupiers, and transaction volume of commercial buildings bought and sold. Our transaction volumes for Asia Pacific were on par with the year before in local currency terms albeit down slightly when measured in US dollars at USD 124 billion.

The more important indicator of future economic prosperity is leasing volumes. Embedded within that data is the expectations of organisations’ future growth. Across the five biggest cities in China, net absorption was up 76 percent, in India’s four cities up 15 percent and in Australia six cities, up 213 percent. In Japan, often regarded as sluggish, in Tokyo and Osaka combined, net absorption was up 24 percent.

There is an increasing recognition that real estate itself is a driver of momentum in cities. The leasing data that JLL provides, is a leading indicator of the health of cities and of the future expectations of growth. The demand for the office space is coming from domestic companies growing in their home countries, based on a range of services sectors including technology and finance.

Domestic demand in Asia Pacific will sustain GDP growth over 2016 and as our Cities Momentum report shows, continue the region’s development of cities with a built environment delivering the kind of smart and productive commercial buildings that businesses, capital and workers are now demanding.

To read more on the implications of the new lease accounting changes, read ‘Buy or rent? New accounting changes could see a surge in real estate ownership’

Megan Walters, Head of Research for Asia Pacific Capital Markets, JLL.
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