Real estate investment intensity yet to reach critical mass in Asia Pacific cities

Commercial real estate investments into Mumbai, Delhi and Bangalore not in line with their economic weight

Singapore, 15 March 2017 – Asia Pacific cities are some of the fastest growing real estate markets in the world, but they have yet to catch up with their European and North American counterparts when it comes to intensity of investment.

JLL’s latest investment intensity index– which compares the volume of direct commercial real estate investment in a city over a three-year period relative to its economic size – reveals that of the top 30 ranked cities, only four are in Asia Pacific: Sydney (eighth), Melbourne (16^th), Hong Kong (28^th) and Tokyo (30^th).

This means that while places like Bangalore, Ho Chi Minh City and Shanghai are racing ahead in their speed of development as real estate markets, they still have room to grow when it comes to attracting investment proportionate to their gross domestic product (GDP).

“Although the emerging cities of Asia Pacific are attracting an ever greater share of global real estate investment, our latest index shows there is some way to go before they punch their weight in terms of investment intensity,” says Dr Megan Walters, Head of Research, Asia Pacific, JLL. “However, the balance is starting to shift. What we’re seeing is that real estate investors are looking more and more to developing cities to satisfy their diversification requirements, with an estimated 60 per cent of the global office development pipeline until 2020 projected to come from emerging markets.”

While offering huge investment potential, the report reveals that emerging world cities will need to boost transparency, improve regulatory oversight and build robust financial platforms to attract real estate investors in the long-term.

What’s holding back CRE investments into Mumbai, Delhi and Bangalore?

“As the report notes, the Indian ‘Emerging World Cities’ of Mumbai, Delhi and Bangalore are not yet attracting direct commercial real estate investment volumes to match their economic weight” says Ramesh Nair, CEO & Country Head, JLL India. “Although they are among the world’s fastest-growing city economies, there are a number of issues which may be partly responsible for holding back direct investment, including market transparency – they are ranked as Semi Transparent Markets in JLL’s 2016 Global Real Estate Transparency Index. Other factors are infrastructure challenges and ownership styles (such as strata-title sales or developers / investors holding on to stock). Contributing to the lower direct transaction volumes is that investors have frequently looked to development or debt lending rather than direct investment to gain exposure to real estate in these cities.”

However, direct investment into India increased by 11% last year to US$2.3 billion, and if these cities are able to continue boosting transparency, improve regulatory oversight and build strong financial platforms they will be able to increase their attractiveness to investors. An example of this is the interest shown from some global investors last year in building portfolios in India to list under the new REITs structures, which have helped to improve market transparency in other countries.