Back to basics

December 9, 2011 / By

We’ve just finished reporting to our subscription based clients of our Real Estate Intelligence Service on the five year outlook of the real estate markets here in Asia Pacific and things are not looking bad. It’s true to say that Hong Kong office and residential sectors have seen prices start to fall, but given its currently the most expensive place to own property, and the fact that rents in Hong Kong have now surpassed those of London and Tokyo in the current environment, it’s little wonder there might be a little wiggle room on the downward direction somewhere along the way, but it’s far from time to panic.

Elsewhere, however, we’re being told that in terms of the economic environment, more downside risks have emerged. Economic forecasters have downgraded the GDP number for AP for 2012 from 5.9% to 5.4% and this was then followed last week by the release of the China Purchasing Managers Index number, now down to 49.1 indicating a contraction in manufacturing output of the regions largest economy. This is the lowest level since March 2009, so we in AP are clearly seeing the short term rippling effects of the sovereign debt crisis in Europe and slowdown in America reaching our shores.

Will there even be a Euro by the time I post my next blog next year?? Certainly not if the front cover of the last edition of The Economist is anything to go by with the image of a meteorite 1 Euro coin with the headline “Is this really the end?” is anything to go by!

When it comes to Asia Pacific or any other region or market for that matter, it always, always pays to get back to basics and to look at the long term fundamentals. And the fundamentals look very good here, very good indeed. We’re already producing 15 million new graduates every year, that’s nearly three times the amount of the US and Western Europe. We’re also home to 8 out of 10 of the worlds largest ports and within the next ten years, Asia Pacific will be home to the world’s largest economy, China. Meanwhile India will be the most populous country on the planet. By 2030 Asia Pacific will be home to 66% of the world’s middle class population, that’s 3.2 billion consumers and by then, I’d risk hazarding a guess, that half of the Fortune 500 will be Asia Pacific companies.

In the last 20 years we’ve seen the total Grade A office space in Asia Pacific grow from 15 million square meters to 70 million square meters. Given what I’ve outlined above regarding the growth of the region, it’s little wonder we’re going to see 35 million square meters of additional space added to that in the next 4 years just to cope with demand.

Undoubtedly, what’s happening in Europe has and will impact AP, but nothing gets away from the fact that this is, and will remain, the higher growth region to be investing in long term. Whatever bumps and scrapes we encounter along the way, I know where I’d be investing – exactly the region I’m sitting in now!


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