AEC boost for industrial sector to benefit office, retail markets
The establishment of the Asean Economic Community (AEC) as a single market by the end of this year will immediately benefit the industrial sectors of member countries, with some positive spill-over for the office and retail markets, according to CBRE Rese
In its latest "Viewpoint Research Report, Asean Economic Community – A Boost to South East Asia’s Real Estate Market", CBRE Research expects a ramp-up in the supply and demand of industrial and office space in most Asean markets in the short to medium term as more small and medium-sized enterprises (SMEs) and multinational companies establish themselves in the region.
In particular, the logistics market is expected to grow and develop in Asean given the strong emphasis under the AEC blueprint for infrastructure development and the gradual elimination of non-tariff barriers across member countries.
The lift in the industrial market will in turn bolster the growth in office demand, as more multinationals enter the market and more regional SMEs expand.
In particular, the financial and legal services sectors in emerging markets could grow on the back of rising infrastructure development and the proposed liberalisation of the region’s capital markets, the report states.
More foreign retailers are also projected to venture into Asean, building on the momentum they have charted in the last few years.
Tourism is a bright spot for Asean member countries, as the AEC blueprint focuses on enhancing air and land transport infrastructure and regional cooperation to attract more visitors to the region.
Desmond Sim, head of CBRE Research, Singapore and Southeast Asia, said that while Asean still needed to overcome hurdles and limitations, the region should remain an attractive proposition for businesses and commercial real estate with the implementation of the AEC serving to strengthen Asean’s development.
The impediments to growth are varied. The report cites the possibility of an ill-managed institutional supply pipeline, which may result in volatility in retail rents. This could delay or even deter retailers from expanding.
The under-supply of skilled labour also poses a challenge for the office and industrial sectors in the short to medium term, which might in turn hamper the expansion of high-value industrial manufacturers.
The disparity in the skill sets between countries also limits the positive effects of the proposed free flow of skilled labour within Asean, he said.
Another limiting factor would be the lack of complementary real-estate investment policies to promote the liberalisation of investment policies and a free flow of capital. Often, real-estate investors are deterred by restrictions on foreign land ownership and the short duration of leases.
A pro-investment environment will be required to encourage further inflow of foreign direct investments and improve the overall development process in Asean. Therefore, a review of a country’s land-ownership policy for acquisition purposes may be necessary to allow more foreigners to participate in real-estate development, said the research head.
Still, market observers remain optimistic about the real-estate capital inflows, going by the strong track record the Asean community has charted in the last decade.
Real-estate investments within Asean recorded Bt1 trillion in capital inflow between 2005 and last year.
For the last five years, from 2010 to 2014, China reigned as the top investor in the Asean market at 29 per cent of total investment volume, which amounted to Bt159 billion of Chinese capital.
This was followed closely by Singapore in second position, with a value of Bt153 billion, which made up 28 per cent of investment in the period.
In tandem with the increase in cross-border investments into the Asean market, a prominent shift has been seen in global capital distribution across all Asean countries in recent years.
"The [impending] Asean Economic Community has played a key role to liberalise the investment markets in Asean to pave the way for foreign investments within individual member states. The diversity in the development of the real-estate markets in Asean provides investors a broader investible universe for their investment strategies.
"Investment into the Asean real-estate market is therefore expected to grow as investors seek alternative markets for their real-estate portfolios," Sim added.
