Southeast Asia continues to be one of the fastest growing markets in the world today- and is set for further outperformance for the 2nd half of 2018. This is the gist of findings if JLL which drilled down on the key themes and factors affecting investments in several Southeast Asian cities, including the Philippines.
Faster Economic Growth But Weaker Currencies
Based on their study, SEA markets generally experienced faster economic growth, expanding by 5.2% year-on-year (yoy) in the 1st half of 2018, prompting positive forecasts in the Gross Domestic Product (GDP) for Thailand, Malaysia and Singapore. However, the risk of capital outflows weighed on certain emerging Southeast Asia currencies, particularly the Indonesian Rupiah and the Philippine Peso. It is for this reason that JLL expects investors to focus on the more developed markets of Singapore, Malaysia and Thailand for the short term.
Elections also impact on investors’ decision on which property market to tap. For instance, many investors are buoyed by Malaysia’s surprise election results in May which saw the removal of goods and services tax that should boost retail sales. However, upcoming elections in Indonesia and Thailand in 2019 may move some investors to defer their investment decisions.
Thailand’s Eastern Economic Corridor (EEC)
The Thai government announced a five-year plan with infrastructure spending of about USD 45 billion and tax incentives to attract advanced industries and logistics operators.
Thailand’s growth numbers is also expected to improve by 2020 as the planned EEC project is well placed to link up with China’s Belt and Road Initiative.
Philippines E-commerce operators continue to expand, set up physical stores in Southeast Asia
In the Philippines, E-commerce operator Lazada is set to extend its 30,000 sqm plant in Cabuyao, Laguna to 60,000 sqm in 2018. Zalora is targeting to move to a warehouse facility in Cavite that can accommodate five million product inventory, five times the capacity of its existing warehouse. It has also recently launched pop-up stores in Ayala Malls to better cater to their customers.
Strong tourist arrivals to boost hotel investments
Tourist arrivals surged across Southeast Asia, growing 9% yoy upsurge has ignited investors’ interests in hotel and leisure developments.
Office take-up continues to rise particularly in Manila, Singapore and Jakarta
Office take-up in Southeast Asia continues to accelerate, rising to 7% yoy in 1H18 as technology, e-commerce and co-working companies expand. The biggest upside surprise in 2Q18 was the strong office take-up in Manila, where net absorption increased by 222,000 sqm in 2Q18, with stronger demand from Outsourcing and Offshoring companies, online gaming operators and business services firms in travel, marketing and IT. Despite the record volume of office completions in 2018, vacancy rate has stayed at 2.2%% in 2Q18 as occupancy of the new buildings was stronger than expected.
The flexible space sector in Southeast Asia is also expanding rapidly in line with growth in Asia Pacific, which grew at a compound annual rate of 35.7% in the last five years. In Singapore, flexible space already takes up 2.8% of office areas after being deemed to be just as cost-effective as traditional office space. In Jakarta, flexible work space is estimated to take up about 2% of occupied office space. JLL expects co-working and serviced offices to take up 10-15% of occupied office space in 2030.
JLL’s Key Views for the Future
JLL has upgraded Singapore CBD office rent and capital value forecasts for 2019, as the potential redevelopment and retrofitting of aging stock could boost occupancy. Prime retail rents expanded in Singapore for the first time in four years and they expect retail rents to rise 0.5-1.0% p.a. for the next four years. Jakarta, meanwhile, expects office rents to fall by another 2-3% in 2H2018 before recovering in 2019. For Kuala Lumpur, JLL raised their office rent forecasts for its fringe areas due to strong demand, but downgraded their forecasts for KL City Centre due to significant supply. Meanwhile, majority of investment activities continue to focus on land acquisitions coming from local developers. Regarded as one of the significant transactions is the acquisition of a 16-hectare site in Manila Bay’s entertainment city by Bloomberg resorts for US$709 million.
Overall, Southeast Asia’s economies grew faster overall in the first half of 2018. While the speed of economic growth for each country in the region varies depending on factors such as currency strength, inflation, government policy, elections, and tourism, JLL’s Head of Research and Consultancy Janlo de los Reyes says he remains confident that investor interest in office take-up in Southeast Asia will stay resilient in the coming years.