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Tuesday February 7, 2012

Asian retail property expected to remain bullish

PETALING JAYA: The Asian retail property sector is expected to remain bullish this year with eager international retailers seeking expansion in Asia, lured by the region's growing wealth and tourism potential.

In the biannual Asian Property Outlook and Strategy report, real estate investment house Pacific Star noted that Asian governments had been focusing on developing domestic demand from a structural perspective, which should bode well for the retail sector.

“The long-term Asian consumption story remains as strong as ever. While we have seen the short-term outlook affected by the uncertainties in the global economy, the growth potential for the region remains.

“This is evident in the comments made by global fashion groups with regards to their expansion plans and the growth in earnings from the region,” said Pacific Star research and strategic planning vice president Lam Chern Woon in a statement recently.

He expects this trend to continue and with it, the demand for innovative retail properties to meet the appetite of the growing Asian consumer.

Firm demand: Pacific Star expects the long-term Asian consumption story to be ‘as strong as ever.’

Pacific Star continues to rate the retail property markets in Singapore, Hong Kong, Kuala Lumpur as Tier 1, given healthy labour market conditions, strong tourism throughput and interest from international retailers.

Markets classified as Tier 1 merit serious investment consideration over the coming six to 12 months, while Tier 2 markets are generally attractive although the risks could be considerably higher due to macroeconomic or supply issues.

“While economic uncertainties will exert downward pressure on prime rents in the near term, the correction is expected to be limited, given the favourable supply outlook and buoyant domestic spending in these markets.

“Retail spending has also held up in Asia due to tight labour market conditions and a buoyant tourism sector,” he said.

He said consumers in this part of the world continue to be more optimistic than their counterparts in the United States and Europe as a result of healthy employment.

While the office sector is expected to be impacted by hiring headwinds due to the fallout from the European debt crisis, the group still rates the Singapore office market as Tier 1 for its attractiveness.

“Pre-commitments have been healthy and the city state remains highly favoured as a global and regional business hub due to its political stability and pro-business environment.

“The cyclical nature of the Singapore office market suggests that it could also recover quickly when global conditions turn around,” he said.

On the Malaysian perspective, the group said the office leasing market in Kuala Lumpur was relatively stable with net absorption improving in the second half of 2011, with relatively healthy economy growth this year expected to support office demand.

However, it said rentals would likely remain soft in the near term with supply outpacing demand, and capital values were expected to remain stable as owners were not under pressure to lower their price expectations.

“Over the medium term, we are cautiously optimistic that governmental initiatives to attract multinational corporations to set up their regional headquarters in Kuala Lumpur will help absorb the new supply and support the office market,” he said.

Meanwhile on the residential front, the group expects policy tightening to tail off where in most Asian residential markets, the effects of earlier property cooling measures have begun to adversely impact sales.

“This has translated into lower home prices in Hong Kong and some Chinese cities.

“Mortgage rates across Asia have also started to creep up over the past few months with a detrimental impact on housing affordability,” he said.

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