This week, changes in political leadership are taking place in the world’s two biggest economies. The US goes to the polls on 6th November 2012 in the US presidential election and Xi Jinping will be named as China’s new president (taking power in March 2013), at the 18th National Congress two days later on 8th November 2012. Both of these events have been planned for months (if not years), and I had planned to write about how these two events might start to bring some clarity to the economic outlook for Asia Pacific. Then Hurricane Sandy happened.
Hurricane Sandy is the largest tropical cyclone on record in the Atlantic. It has caused tragic loss of life and devastating damage to infrastructure and property across a swathe of the Caribbean and North America. The earthquakes and floods that we experienced in different parts of Asia Pacific over the last year or two, remind us of the interconnected nature of our world and keep our thoughts with all those that are suffering from the effects of the storms, as they continue with their repair efforts.
Events such as these come from nowhere to disrupt outcomes and shift outlooks. The hurricane is also a reminder that looking at past data is no guarantee to what will happen in the future. The US fiscal cliff, the on-going sovereign debt problems in Europe, as well as the change of political leadership in the US and China, are all combining to generate uncertainty that is having an effect on the real estate markets, with the leasing and investment markets reacting in different ways. Leasing markets volumes are slowing in some cities in Asia Pacific, as occupiers wait to see what the economic outlook will be next year.
By contrast, investment markets are holding up in Asia Pacific reasonably well. Perhaps a reflection that in uncertain times, with extremely low interest rates looking set to continue and the potential for rising inflation, real estate remains a safe option in the minds of investors. So whilst past numbers may not tell us everything about the future, we can report that during the most recent quarter (3Q 12) investment volumes reached USD 22.4 billion across Asia Pacific in 3Q12, down 5% y-o-y but relatively steady on a year-to-date comparison down just -2% at USD 70.1 billion compared to USD 71.6 billion last year.
Transaction activity was slower across China and Japan in 3Q12, but that was slightly offset by higher volumes in Hong Kong, Taiwan and South Korea. In Australia volumes improved 17% y-o-y and there are a number of large deals at advanced stages of negotiation which should support transaction volumes at year end.
In the next couple of weeks we should start to see the political landscape more clearly and by extension the economic outlook for Asia Pacific. That would allow occupiers to assess their options and start to take space in the higher growth cities that we have here in Asia Pacific. Investors, particularly pension funds, are likely to continue to appreciate the income stream that real estate can provide, in excess of that from other asset classes and as a hedge against potential inflation.
