Urbanisation, growing middle class to boost demand in Bangkok

The report, released following the three-day “World Economic Forum East Asia” meeting which ended in Jakarta yesterday, highlights how Singapore is set to continue to benefit from economic growth across Asean and how a rising middle class, urbanisation and competitive labour costs in Southeast Asia will benefit the real-estate markets of Jakarta, Manila and Bangkok.

Southeast Asia – and notably Vietnam, Myanmar and Thailand – has served as a low-cost alternative to China, says the JLL report.

An additional 8 million people per year will be making the rural to urban migration across Southeast Asia by 2020, helping to push the urbanisation rate for the region to above 50 per cent, from 47 per cent today.

The region’s middle class is expected to grow by another 70 million by 2020, as highlighted in the paper.

These trends are expected to lift demand for real estate, especially for retail space in Bangkok, offices in Manila and residential and logistics assets in Jakarta.

Domestic consumption is rising in Indonesia in tandem with solid economic growth, rising urbanisation and wealth levels.

Rising rental yields and the potential for capital appreciation have led to considerable interest from local and foreign investors, and many are looking to acquire land within established industrial estates in the greater Jakarta area.

In Manila, locators have taken up a large volume of office space as the city develops as an outsourcing centre.

In Bangkok, a more stable political environment following the military coup in May last year has given landlords and occupiers greater motivation to renew their contracts, the report states.

Despite an ageing population, Thailand has a large middle class, which has strong buying power, it adds.

Southeast Asia’s stable economies, supported by a recovering US, will support the Singapore office market in the long term, despite an expected large supply of completions in 2016 and 2017.

Singapore is set to continue to benefit from economic growth across Asean as global firms seek to establish a presence in Southeast Asia, many choosing the city-state as their regional headquarters.

Chris Fossick, managing director of JLL – Southeast Asia, said Singapore’s office markets had been buoyant for the past three years, as continuing regional growth has driven companies to establish a presence in the country.

“This is reflected in the strong demand we are seeing for grade-A office space, which is in turn driving construction. The strength of occupier demand, existing and forecast, means we are seeing a great deal of investor interest in office assets in Singapore, which is resulting in competitive bidding on investment transactions,” he explained.

Myanmar’s real estate, meanwhile, is benefitting from booming visitor numbers. While there is interest from institutional investors with higher risk appetite, mainstream investors still find the political landscape and land-ownership structure too challenging, he added.

Chua Yang Liang, head of research for JLL in Southeast Asia and author of the report, commented that while limited real-estate assets across the region made direct investments challenging, investors had benefitted from the growth of the retail market through joint ventures with local partners or direct participation in the equity market.

Fossick added that in the short term, there were many enabling factors that would help shape the property markets across Southeast Asia.

Amidst this potential, some Asean countries still face challenges of transparency, legal and political risks. Nonetheless, selected areas have seen improvement in recent years and some risks can be mitigated, he said.