Asian commercial real estate markets witnessed a steady recovery of demand in the fourth quarter along with further improvement in the regional macro economic environment. This helped rentals stabilise and several markets recorded two consecutive quarters of rental increments, signaling the end of the downward cycle. However, most corporates remained cost-conscious and continued to adopt decentralisation and consolidation strategies to contain real estate costs.

The period saw multinationals and financial institutions in selected Asian cities display a renewed willingness to expand. Overall office rents in Asia fell 1.8% in the fourth quarter, a slower rate of decline as compared to the 3.1% fall recorded in the previous quarter. Prime retail rents in most cities remained stable, with key markets either recording an uptick or slower rate of decline. The industrial property sector stabilised further with industrial rents in most Asian cities ending their decline and recording minor escalation. Prices for luxury homes continued to edge up in Beijing, Shanghai, Guangzhou and Hong Kong at increments ranging from 6% to 10% q-o-q, while prices in other markets remained largely stable.

OFFICE MARKET

The Asian office market continued to approach the bottom of the current cycle during the fourth quarter as rental declines slowed further and absorption rates gradually picked up. The period saw multinationals and financial institutions in selected Asian cities display a renewed willingness to expand. The unemployment rate declined for three consecutive months in Taiwan and Hong Kong, whilst in Japan it fell from July 2009’s record high of 5.7% to 5.1% in December, reflecting the overall improvement in the Asian labour market.

Despite the positive news on the employment front, this did not translate into recovery of demand in the office sector in many Asian office markets as many companies continued to adopt consolidation and decentralisation strategies to reduce real estate related costs. The fourth quarter saw overall office vacancy in Asian cities edge up 30 bps q-o-q to 12.8%, although Beijing, Hong Kong, Taipei, Bangalore and several Southeast Asian cities all recorded a minor decline in vacancy level.

As the market outlook began to look more positive, landlords of prime buildings in leading Asian financial centres started to take a firmer stance on rents. Elsewhere, oversupply problems continued to exert significant downward pressure on rentals in a number of emerging markets. Overall office rents in Asia fell 1.8% in the fourth quarter, but the rate of decline decelerating from the 3.1% recorded in the previous quarter. The current downward cycle has now lasted for about 18 months but certain markets with stronger economic fundamentals have already seen the slide in rentals come to an end.

RETAIL MARKET

There were signs of recovery in Asian retail property markets in the fourth quarter as consumer confidence across the region remained firm on the back of improved economic conditions. Festive promotional activities conducted by retailers proved successful in lifting consumer spending. Demand for prime retail space remained firm and the overall level of retail leasing activity in the region gradually picked up. The fast fashion and food & beverage sectors continued to dominate leasing activity and remained fairly active in searching for new locations to expand.

Prime retail rents in most cities remained stable, with key markets either recording an uptick or slower rate of decline. Prime retail rents for well-located prime retail facilities in Shanghai, Hong Kong and some emerging markets continued to record a slight increase on the previous quarter, thanks largely to tight availability and/or improved demand for desirable space.

Looking ahead, the Asian retail market is expected to strengthen as consumer sentiment remains positive amidst the generally optimistic economic outlook. The Chinese New Year festive season will bring with it a further rise in retail sales activity. However, the threat of oversupply still looms in Singapore, New Delhi, Beijing, Shanghai and Guangzhou, all of which are expecting a large quantum of new retail space to come on stream in the near future.

INDUSTRIAL MARKET

Along with the gradual recovery of the export sector and continued expansion of domestic demand, industrial production across major Asian economies continued to record growth in the fourth quarter. Tokyo and a number of larger Chinese cities, including Beijing, Shanghai and Chengdu started to see increased demand from domestic companies and foreign firms looking to relocate. The improvement in overall market sentiment acted to further stabilise the sector, with industrial rents in most Asian cities ending their decline and recording a minor rise.

In China, strong domestic demand in major cities emerged as the main driver of demand for industrial properties, including both warehouses as well as business parks hosting hightech, pharmaceutical and new energy industries. A new policy introduced by the Hong Kong government to encourage the revitalisation of ageing or under-utilised industrial buildings is acting to stimulate demand, which resulted in a rise of capital values by 5.2% q-o-q. In Tokyo, the vacancy rate for warehouses and logistics units fell as domestic corporations looked to consolidate their subsidiaries and relocate to high quality large scale facilities. Local manufacturing companies in the Philippines begin to expand capacity to cater to the growth in domestic demand, while a number of developers in Vietnam commenced the construction of new industrial parks.

LUXURY RESIDENTIAL MARKET

The Asian luxury residential sales market enjoyed a strong fourth quarter as investor confidence gradually returned, underpinned by the persisting low interest rate environment and the strong rebound in equity markets. Prices for luxury homes edged up in Beijing, Shanghai, Guangzhou and Hong Kong by increments ranging from 6% to 10% q-o-q, while prices in other markets remained largely stable.

Despite the strong rebound in the sales market, leasing demand for luxury homes remained somewhat fragile in some cities, with Beijing, Guangzhou, Kuala Lumpur and Ho Chi Minh City recording a modest decline in rents in the fourth quarter. Leasing markets in Hong Kong, Shanghai and Bangkok gradually began to recover, with rents for luxury homes climbing by increments ranging from 1% in Bangkok to 6% in Hong Kong.

The next couple of months may see end-users and investors adopt a more cautious stance following the introduction of measures tightening lending for property in certain

markets, especially those which have recorded substantial increases in property prices over the past year. It is expected that the potential reversal of other preferential policies and fiscal measures with respect to the residential market could also restrain sales activity in a number of key Asian markets in the first half of 2010.

Visit CBRE Research to download full report or contact us for more information.

Asian REITs continued to recover in the second half of 2009 as the stock markets in Asia improved overall and conditions in the credit market became more relaxed. The total market capitalisation of Asian REITs rose 17.6% in the second half and 34.5% for the whole of 2009 thanks to the recovery in prices and the issuance of new shares. The market size of Asian REITs has yet to recover to pre-crisis levels, with their market capitalisation as of the end of 2009 still 17.4% lower than that recorded at year end 2007.

Second half of 2009 sees increase in refinancing and consolidation activity

The review period saw a rise in corporate activity in the Asian REIT market, mostly involving mergers and consolidation or refinancing. In Japan, four mergers involving J-REITs were announced following revisions to the tax code that clarified the definition of distributable profit, thereby clearing a former obstacle to acquisition or consolidation. Nippon Residential Investment, sponsored by the bankrupt Pacific Holdings, agreed to merge with Advance Residential Investment, while the failed New City

Residence J-REIT selected Daiwa House Industry Co as its new sponsor and will merge with BLife Investment Corporation. LaSalle Japan REIT agreed to be absorbed by Japan Retail Fund while Tokyo Growth REIT and LCP REIT also announced plans to combine. The above mergers are scheduled to be completed within the first half of 2010.

In Singapore, Australia-based investor AMP Capital acquired a 19.2% stake in MacarthurCook Industrial REIT (subsequently renamed AIMS AMP Capital Industrial REIT) and a 50% holding in the REIT’s management company for S$54.1 million (US$38.5 million). The portfolio of MacarthurCook Industrial REIT was valued at approximately S$494 million (US$351.5 million) as of 30 September 2009, reflecting a substantial discount on the acquisition price.

In the second half, the overall credit condition of Asian REITs improved as most managed to refinance or extend their loan obligations and advance their unit prices. The review period saw several J-REITs seek to collectively raise over JPY 65 billion (US$706 million) capital through new share issuances. In October, Nippon Accommodations REIT announced plans to raise a maximum of JPY 20.5 billion (US$220.7 million) through the issue of 42,000 shares, while November saw Kenedix REIT

raise roughly JPY 8.5 billion (US$91.5 million) through a public stock offering. December saw Japan Real Estate REIT announce a public offering of 42,000 new units to raise approximately JPY 25.1 billion (US$270.2 million), while Nomura Real Estate Residential Fund raised JPY 11.5 billion (US$124 million). The establishment of the Kanmin Fund, a Public-Private Real Estate Market Stabilisation Fund, during the review period also helped boost public confidence in the J-REIT sector. The Kanmin Fund is expected to have total capital of JPY 450-500 billion (US$4.8-5.4 billion).

Visit CBRE Research to download full report or contact us for more information.

Visit CBRE Samui for more details on Conrad Koh Samui Residences

Asian real estate investment markets recovered strongly in the second half of 2009 after enduring a difficult start to the year. Investment turnover bottomed out in the first quarter but improved thereafter as investor confidence returned, underpinned by low financing costs, the recapitalisation of private and public real estate funds/investors and the stabilization of prices across key markets. Direct real estate investment in the region jumped 56% y-o-y in the second half of 2009 to an estimated US$25 billion. The rising value of investment transactions in the second, third and fourth quarters of 2009, indicating the emergence of a consistent trend as opposed to a one-off improvement. Despite the relatively high turnover in the second half, the overall transaction volume of US$38 billion for 2009 was still 22% lower than that recorded in the previous year.

The period saw almost every Asian market record an increase in investment activity on a half-yearly basis. Renewed activity by domestic investors ensured Hong Kong was the most active market, accounting for US$7.3 billion or 29% of the regional total in the second half. China, Japan and Singapore also witnessed a strong rebound in investment activity, accounting for 22%, 17% and 10% of the total volume respectively.

Easier access to local lending facilities and leverage provided domestic real estate funds and investors with a competitive edge, allowing them to dominate the Asian investment market in the second half of 2009. Domestic and intraregional investors accounted for 83% and 15% of total volume respectively during the review period. The amount of interregional cross border investment activity accounted for just 2% of the total investment volume, down from the 4.5% recorded in the first six-months of 2009 and significantly behind the usual 16% to 30% of total investment activity recorded in recent years.

Visit CBRE Research to download full report or contact CBRE Investment for more information.

This means that transfer tax will go back up to 2% of assessed value from 0.01%.

Certain vendors including property developers will pay 3.3% specific business tax up from 0.11%.  Mortgage registration will increase from 0.01% to 1%.

These taxes affect completed property so the announcement will create an incentive for developers with unsold completed inventory to sell and transfer before the expiry.

We do not expect that the announcement will have a significant impact on off plan launches but it will affect developers’ profit margins as developers pay the specific business tax.

They may want to raise prices to compensate for the extra tax but we think the volume of competing projects scheduled to be launched this year may keep prices roughly level for similar products in similar locations.

The increase in mortgage registration means that it will be more expensive for borrowers to switch lenders once special introductory interest deals expire.

Domestic passenger disembarkations at Suvarnabhumi Airport were 551,954 compared to 386,637 in January 2009.

Bangkok’ Don Muang airport has minimal international passengers. Domestic disembarkations were 119,484 in January 2010 compared to 194,089 in January 2009 and reflect the move of many domestic flight operations back to Suvarnabhumi Airport.

Phuket international disembarkations were 172,952 in January 2010 compared to 122,776 in January 2009 a 41 % increase year on year.

Domestic disembarkations at Phuket airport were 191,216 in January 2010 compared to 147,947 in January 2009.

All this is good news for the Thai tourism and hotel industry.  It must however be remembered that the January 2009 numbers were low due to the airport closure in the previous month.

(Bangkok – February 12, 2010) – CB Richard Ellis, the world’s largest commercial real estate services firm, has been appointed by The Royal Group of Cambodia as exclusive advisor and sole agent to introduce investors in developing the island of Koh Rong, Cambodia for international tourism and real estate development.

“CB Richard Ellis is delighted to be appointed as the lead consultant for Koh Rong.  We are very conscious of our responsibilities to create a sustainable and ethical approach to the development of one of Southeast Asia’s most pristine and untouched islands” said David Simister, Chairman, CB Richard Ellis Thailand and Cambodia.

The Koh Rong archipelago, 30 minutes by boat from Cambodia’s main coastal town of Sihanoukville, is being hailed as the “next Asian Riviera” – following the success of Phuket, Ko Samui and Bali.

The Royal Group, renowned as Cambodia’s most dynamic and diversified business conglomerate, has been granted a 99-year lease by The Royal Government of Cambodia to develop Koh Rong, the largest private island in the region.

The company is headed by Chairman & CEO Neak Oknha Kith Meng, one of Cambodia’s most prominent tycoons. He said: “CBRE is an invaluable partner for advising Royal Group on development of this unique destination to international standards and promoting it to the global market.”

Koh Rong, Cambodia’s largest island covers 78 sq. kms, about a third of the size of Thailand’s Koh Samui, with a local population of approximately 1382 people from 317 families living in small fishing villages.  The island remains virtually untouched with its 28 white sand beaches stretching up to 6 kilometers and crystal clear water comparable to the Maldives.

“The Koh Rong story is similar to that of Samui and Phuket 20 to 30 years ago,” said Mr. Simister.  “It is one of the last undiscovered paradises in South-East Asia.”

Development opportunities are now opening up with a new international airport at nearby Sihanoukville, currently welcoming chartered flights and private jets.  Flights from Phnom Penh and Siem Reap are expected to begin in the near future, with rumours of regional airlines also considering scheduled flights in 2010.

“The airport, once fully operational, will be the principal gateway to Cambodia’s southern coast and a critical catalyst for the area’s development,” he said.

An environmental impact study is already underway for the development of Koh Rong as “Asia’s first environmentally planned island”.  A team of international consultants is now on board including Scott Wilson Engineers to oversee the environmental aspects and MAP Architects Hong Kong to create the Master Plan to be rolled out over the next three months.

Tourism development of Phuket and Koh Samui over the past 20 years is being studied to shorten the process of developing high quality, sustainable tourism at Koh Rong, while avoiding the mistakes of previous developments.

“The main focus is on developers with plans for exclusive, environmentally sensitive tourism projects,” said Mr. Simister.

Two to three golf courses can be accommodated on the island and new infrastructure will include plans for organic farming, waste management, improved education, jobs and medical care for the local population.

CBRE is also the sole agent for Song Saa Island Resort in the Koh Rong archipelago, the first international quality resort to be launched.  Song Saa is an exclusive private island resort developed by Brocon Investment comprising 20 villas, of which only 14 are available for private ownership. 

Song Saa has had an immediate success following an overseas launch in Phuket before Christmas.  85% of the units are booked by a global mix of investors including Norwegian, French, Hong Kong Chinese, Hong Kong expatriate, Japanese and British.

“The international market has clearly identified with the products.  Pioneering investors in this new frontier are attracted by the low entry price, the guaranteed yield and expect to be rewarded by a significant upside in capital appreciation” said Mr. Simister.

“Song Saa marks the beginning of international development of the Cambodian coastline and is the first project to target foreign buyers.  We believe the success of Song Saa’s eco-development model will be replicated on a larger scale in future developments on Koh Rong” added Mr. Simister.

He said the Koh Rong archipelago and Cambodian coastline has the potential to become the next Asian Riviera, comparable to established markets such as Phuket, Samui and Bali.

“Song Saa is merely the beginning of Cambodia’s coastline development, but its success has certainly put Cambodia on the map and is making global investors recognise Cambodia’s untapped development potential.”

The Royal Group has business interests in a wide range of industries such as telecommunication, media, banking (partner with ANZ Bank), insurance, education, trading, resorts and property, with interests extending to Cambodia’s railways with the subsidiary company Toll Holdings from Australia.

A quick check on Booking.com seems to confirm the story with many hotels saying they have few available rooms for the February 13-14th weekend.

The Hilton Arcadia and Millennium Patong had five rooms left and the Le Meridien Phuket Beach Resort had no rooms left.

This is obviously good news for the Phuket hotel market.

By James Pitchon, Executive Director

Finally we have a little bit of good news.

Hutchinson Technology (Thailand) has committed 4.3 billion baht to build a hard disk drive parts production plant at Rojana Industrial Park North of Bangkok.

The company broke ground yesterday on a 16 Rai (6.4 acre plot).

When you ask people what Thailand exports many people would say rice. In fact Thailand’s export of hi-tech products is over six times greater than agricultural products. According to the Board of Investment (BOI) Thailand was the world’s thirteenth largest exporter of electrical and electronics in 2008. Since 2005 Thailand has supplied about half of the world hard disk drives.

Another bit of positive news was the announcement by family run meat processor Thai-German Meat that they are going ahead with a one billion baht new investment in a factory on a 12 Rai (4.8 acre) plot at the Wellgrow Industrial Estate East of Bangkok.

The company specializes in Western meat products such as sausage, ham, bacon, salami and dried ham.

A sausage factory is not as hi-tech as a disk drive parts plant but it shows diversity in Thailand’s industrial base and more importantly confidence among some manufacturers to proceed with projects.

By: James Pitchon, Executive Director

In the first 11 months of 2009 total Chinese visitors to Thailand were only 683,781 and 778,337 for the whole of 2008.

The china Tourism Academy (CTA) forecasts that there will be 54 million outbound Chinese tourists in 2010.

Thailand ranks 7th in terms of destinations and is beaten by three countries Japan, South Korea and Singapore who do not have land borders with Thailand.

Taking into account the poor outlook for European feeder markets Thailand needs to do better in attracting Chinese tourists. Bangkok is facing a 30% increase in hotel rooms over the next three years and needs to develop new growing feeder markets.

By: James Pitchon, Executive Director

As you can see from the picture it’s not a prime property and anyone familiar with Hong Kong would know that Lockhart Road is a secondary retail location.

In Thai terms it equates to 120 million baht for 21.4 square wah site that’s 5.6 million baht per square wah for a site no bigger than a medium size townhouse. The Highest land price recorded in Bangkok   as far as we are aware is 1.2 million baht per square wah for a prime location.

The property, located on Ploenchit Road next to the Maneeya Centre office building, has 275 Rooms, 58 suites and 19,999 square metres of meeting space.

A quick check on their reservation website showed a room rate of 5,999 baht for one night on February 3^rd for a deluxe 37 square metre room.

By comparison the following rates were being offered by competing properties nearby.

In the same area the following serviced apartments were offering these daily rates.

There are numerous other hotels under construction within one kilometer of the Renaissance including the Kempiniski at Siam Paragon, St. Regis on Rajdamri, M Gallery Langusan, the Okura at Park Ventures and Novotel on the corner of Ploenchit and Soi Ruam Rudee.

We expect that there will be a 30% increase in Bangkok hotel rooms over the next three years.

We will need to see a similar increase in business and leisure travel in order for hotels to be able to increase room rates.

Taking into account economic conditions in the long haul feeder markets in Europe and the US, we cannot see a big upswing in visitors from these destinations.

Maybe the surprise card will be visitors from India and China but to date Thailand has not performed well in attracting Chinese tourists.

In the absence of a significant increase in arrivals the outlook for the Bangkok hotel industry is going to be increased competition with reduced rates and occupancy.  Surprisingly there are still plans to develop even more hotels than those already under construction.