Commercial property market outlook remains subdued in South-east Asia

THE real estate sector is struggling to hold up in much of South-east Asia, with certain smaller niches expected to sustain the market in the months ahead, as the Covid-19 pandemic remains a challenge.

That's in contrast with other parts of the Asia-Pacific, such as China and Australia, which are tipped to see a boom in commercial property assets.

"The region's key property markets withstood the latest round of Covid-19 restrictions... and the momentum is expected to pick up in the last quarter to help end the year on a strong note," consultancy Colliers said in its quarterly Asia-Pacific market report on Wednesday (Oct 20).

That's as "improving business confidence combined with ample liquidity led to a pickup in transactions involving both domestic and foreign investors and end-users, especially in the commercial segment, in most major Apac (Asia-Pacific) markets in the third quarter", Terence Tang, Colliers' Asia managing director of capital markets and investment services, added.

The report noted that stiff Covid-19-related restrictions in Thailand "did not impact overall investment activity" in the third quarter, based on sustained in-flows into mega-projects such as the launch of Sahapat Group's KingBridge Tower office building.

"During the final quarter of the year, Colliers forecasts overall investments in Thailand will continue to grow, provided lockdown measures and travel restrictions are eased," the report added.

"Our outlook is based on observed pent-up demand in the industrial sector, plans to launch large retail projects and the renovation of up to 5 large retail projects."

But, in Indonesia, demand for large office space is expected to remain weak until 2023, with tenants cutting the area of their leased premises by as much as 30 per cent when renewing rentals in the quarter, Colliers reported.

Still, the firm pointed to the growing demand for smaller spaces as a positive sign for the co-working segment.

The office market in the Philippines is also soft, with Colliers revising its Metro Manila vacancy forecast to 15.8 per cent by end-2021, against 12.5 per cent previously.

The worsening outlook for office space comes on the back of weak demand by offshore gaming firms, as well as "ongoing rationalisation of space in the corporate sector", the report noted.

But outsourcing and other businesses continued to drive office space take-up, and Colliers expects such firms to lead absorption in the commercial segment for another 6 to 12 months.

In Singapore, market activity was spurred by Lendlease Global Commercial Reit's bigger investment in retail development Jem, while private funds picked up industrial assets.

Yet "the office sector was relatively quiet with only one sale of a major office building and some strata office floor transactions recorded", Colliers observed.

Separately, Bali luxury villas were another sector to watch, based on higher sales - mainly to domestic buyers, but also to investors from Singapore, Hong Kong, Europe and North America.

Colliers described the rise in sales as healthy, and named villas "the one bright spot" in a "severely impacted hospitality sector" ahead of the planned reopening of Bali to vaccinated visitors - a move that could revive retail and hospitality on the Indonesian resort island.

But the broader Asia-Pacific office space was buoyant, as end-user demand for offices and business parks in China drove 12.6 billion yuan (S$2.7 billion) of transactions in Shanghai in the third quarter.

More deals are expected in Shanghai in the months ahead, alongside interest in office properties in Beijing's Central Business District (CBD) and fringe areas; office, retail and mixed-use developments in Chengdu; "income-producing office assets" for institutional buyers in central Xi'an; and strata-office projects in Hong Kong, among others.

Elsewhere, Australia is tipped to see strong office demand continue in Sydney's CBD, as belated supply opens up into the early part of 2022.

The potential resumption of inter-state travel is expected to drive off-market CBD and metro deals in Melbourne, where subdued recent activity was led by city-fringe office investments.