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While Singapore is still a hot market for investors, Hong Kong has moved from HOT to COLD in the third quarter, according to the latest all-property Fair Value Index by DTZ, which measures the attractiveness of commercial property markets worldwide.
The Asia Pacific region still offers attractive returns to investors, with an index reading of 65. This compares to a global FVI score of 63 in Q3 and a Q2 score of 67 for the Asia Pacific.
The Hong Kong office, retail and industrial markets saw the biggest change from the earlier quarter, seeing a significant uplift in capital values over the previous period. The retail market recorded a dramatic change in Q3, declining to a very low 2.0 percent.
David Green-Morgan, DTZ Head of Asia Pacific Research, commented: “At the current price level, Hong Kong markets look over-valued and all three commercial property sectors – office, retail and industrial – are now classified as COLD. In contrast, among other major markets, Singapore retains a HOT market in all three property sectors.”
Though the overall index score has not changed considerably, classifications for 10 markets have moved, with a number of markets becoming less attractive to investors. While the three Hong Kong markets have moved from HOT to COLD, the Sydney retail market has moved from WARM to COLD while Tokyo offices have moved from HOT to WARM.
However, several markets are now more attractive to investors, with Chennai offices and Sydney industrials moving from WARM to HOT, while Auckland offices and industrials together with Guangzhou offices have moved from COLD to WARM.
Investment prospects across the sectors have also seen a slight change. Buoyed by the strong recovery in exports, the industrial sector, with a score of 65, now offers more opportunities than the retail sector, which has an index reading of 58. The office sector is still the most attractive in the Asia Pacific, with an unchanged index score of 70.
The Asia Pacific office sector has enjoyed a clearly improved outlook in Q3 in major locations like Singapore and Bengaluru, as the rapid economic revival continues to push up prime rents. Average prime rents are expected to increase by 9 percent this year and 6 percent to 8 percent from 2011 to 2014.