Foreign investment in commercial property tipped to triple

Foreign investment in Asia Pacific commercial property markets could at least triple in the medium term, according to research conducted by real estate and investment firm Jones Lang LaSalle.

The research predicts in the next three to five years foreign investment in Asia Pacific direct property, which was around 10 per cent in 2003, could match the 50 per cent level of foreign investment in US and European markets.

Australian and Japanese investors currently account for almost 80 per cent of foreign investment in Asia Pacific commercial property markets.

The region’s improving economies, increasing transparency levels, falling regulatory barriers and the increasing globalisation of the commercial property market have triggered interest in the commercial property market, says Jones Lang LaSalle’s head of investments, Asia Pacific, Pat Smith.

He says an additional attraction is the growing popularity and awareness of the real estate investment trusts (REIT) market in North Asia.

“Over time, improved market transparency in the Asian markets could lead to a greater emphasis on income returns and less focus on capital appreciation, similar to the Australian LPT sector,” he says.

“REITs will also drive the investment towards yields. As the bulk of capital looks set to continue to be supplied by pension/superannuation funds, investors are expected to be focused on assets offering potentially lower but more stable returns.”

Coming under particular scrutiny from Australian investors will be Japan’s REIT market, according to Jones Lang LaSalle’s head of corporate finance and investments in Asia, Richard Johnson.

At the end of June 2004, 13 REITs were listed on the Tokyo Stock Exchange with a market capitalisation of US$11.7 billion.

“This is remarkable given that it took the US some 27 years to achieve a similar market capitalisation,” says Johnson.

However, research shows issues like sourcing, risk management and enhanced performance measures still need to be addressed to maximise performance of Japan’s REITs.

The research also says markets to witness the most interest apart from Tokyo in the short term will be Seoul and Hong Kong with China and India expected to see significant growth in the medium term.