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CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm, with 2018 revenues of $21.3 billion and more than 90,000 employees (excluding affiliate offices). CBRE has been included in the Fortune 500 since 2008, ranking #146 in 2019. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

INVESTMENT SERVICES

CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers with $107 billion in assets under management.

Built up over more than 40 years, our unparalleled platform is focused on real assets, giving our institutional clients access to real estate and infrastructure in the Americas, Europe and Asia Pacific. Our clients benefit from a complete range of investment solutions including equity and debt, direct and indirect, and listed and unlisted strategies.

Trammell Crow Company, founded in Dallas, Texas in 1948, is one of the nation’s oldest and most prolific developers of, and investors in, commercial real estate.The CBRE Global Investors and Trammell Crow Company platforms make up the Real Estate Investments division of CBRE Group.

The Real Estate Investments division is led by
Danny Queenan, Global CEO, Real Estate Investments.

BLOGS

Regularly released content on the state of the real estate and infrastructure industry are produced by our subject matter experts and shared on their blogs. A selection of them can be found below.

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ASIA PACIFIC WATCH

Replacement cost analysis is an important pricing metric to help judge the attractiveness of standing assets. Similarly, construction costs are critical in determining the viability of new developments for value-add or opportunistic strategies. Inflation in general has been muted in recent years, and cost escalations for most goods and services in most APAC markets (indeed globally) have been fairly benign. On a regional aggregate basis, CPI grew in APAC a mere 2.0% last year, and according to Consensus Economics (May 2019) the median CPI forecast for 2019 is even lower at 1.9% and just 2.1% in 2020. But strong demand for new high-quality real estate coinciding with capacity constraints in some segments have been pushing prices higher than CPI for many construction-related goods and services in most major APAC markets. A fully employed labor force both for skilled and unskilled work in construction is a good example of where project cost estimates are rising due to constraints. For the most part, labor used for commercial real estate construction is broadly interchangeable with labor used in the construction of public works, private sector housing and infrastructure; strong growth in these sectors in many APAC markets thus puts upward pressure on labor. China’s massive global “Belt and Road” initiative has been absorbing large volumes of Chinese labor as has Japan’s 2020 Summer Olympics-related construction. Meanwhile, global trade tensions have been making for volatile metals prices and thus difficult-to-predict inputs for upcoming construction.

LAND PRICES RISING

Japan has for decades suffered from falling land prices following its real estate bubble bust in the early 1990s. But nationwide, land prices have been rising in recent years and in 2018 increased 0.3% for residential land and 1.9% for commercial land. Understandably, land prices in the biggest cities – and within them, in the inner ward areas – have seen price growth easily outstrip these national figures. Commercial land prices across Greater Tokyo were up 3.7% last year but surged even higher in Greater Osaka (up 4.7%), Sapporo (up 8.8%) and Fukuoka (up 12.3%) according to official data. So too, across APAC, we have seen land prices increase well above CPI in recent years – notably for industrial-zoned land of Tier 1 Chinese and Australian cities.

JUNE 2019

20,601.19

7.4%

Nikkei 225

29,901.09

9.4%

Hang Seng

2,898.70

6.1%

Shanghai Composite

108.59

2.6%

Yen/Dollar

Data points through end of May 2019. Change represents month-over-month change.

ANNUAL COMMERCIAL LAND PRICE GROWTH IN JAPAN

Source: Japan’s Ministry of Land, Infrastructure, Transport and Tourism and Mitsui Fudosan.

PRINCIPAL CONTRIBUTOR:
 
Shane Taylor
TENDERING PRICE GROWTH FORECASTS FOR 2019 VARY

According to the Arcadis Global Construction Costs Report 2019, three APAC cities – Hong Kong, Macau and Tokyo – rank among the ten most expensive globally. Forecasts of indicative tendering price growth for 2019 YoY across APAC vary widely. Hong Kong is expected to see flat to slightly falling tendering prices this year, with Kuala Lumpur showing a barely positive range from 0-2%. At the other end of the spectrum, Manila and Jakarta both with 5-7% growth, Sydney 4-5%, Seoul, Melbourne and Ho Chi Minh City each 3-5% are forecast to see the biggest increases of their indicative tendering prices this year. It makes sense that Manila’s should be so high: Arcadis expects it to have the third largest construction industry value growth of major markets globally this year.

INDICATIVE TENDERING PRICE GROWTH FORECASTS FOR 2019
Note: Midpoint of Forecast Range
Source: Arcadis, 2019 International Construction Costs.
SEOUL LEADS NORTH ASIAN MARKET COSTS HIGHER

Construction cost deflation was also noted in the RLB survey of 2018 for Hong Kong, a trend which is forecast again for this year. Of the major North Asian cities in the RLB survey, cost escalations over the coming five years are expected to be the greatest in Seoul. Restriction on the collection of sea sand necessitates imports, combined with minimum wage increases, have pushed up construction costs in South Korea. Price growth should peak this year (up 4.8%) and next (up 4.6%) before encountering decelerating growth in coming years. Currently costs of KRW’000/SqM 3,500-5,200 are assumed in Seoul five star hotel construction, KRW’000/SqM 2,575-3,350 for Prime offices, KRW’000/SqM 1,750-2,525 for Malls, KRW’000/SqM 1,675-2,825 for Residential and KRW’000/SqM 1,300 – 1,625 for Warehouses.

NORTH ASIAN CITIES:
TENDER PRICE ANNUAL CHANGE FORECASTS
Source: Rider Levett Bucknall, 2Q 2019 International Construction Market Intelligence
NZ CITIES LEAD PACIFIC MARKET COSTS HIGHER

The two largest markets in New Zealand encountered 6% increases in construction costs last year. A pipeline of national health and hospital projects, several university developments and some new projects to replace demolitions from the 2016 Kaikoura earthquake are all variables thought to have pushed prices up so much last year according to RLB. In Australia, urban renewal projects proceed apace in several cities as well as some large public sector projects which sent costs higher, notably in Sydney and Melbourne. On an absolute level, Canberra and Sydney were the two most expensive of the major markets in Australia for construction costs for most property types. Darwin however was the most expensive Australian city in the survey for constructing warehouses at AUD/SqM 800-1,420 compared to Sydney at AUD/SqM 770-1,240.

PACIFIC CITIES:
TENDER PRICE ANNUAL CHANGE FORECASTS
Source: Rider Levett Bucknall, 2Q 2019 International Construction Market Intelligence
LABOUR COSTS RISE GIVEN WIDE SKILLS DEFICITS

Overall unemployment rates across APAC are very low, even at multi-decade lows in some cities. Thus it has been difficult for construction companies and contractors to find and retain suitable skilled and unskilled labor. A recent survey by Turner and Townsend found that none of the major markets of APAC had a surplus of construction labour and only two – Brisbane and Perth – were in balance. All other APAC cities were deemed to have a deficit of labor in the sector. Construction labor costs across the region vary widely: in the most expensive Pacific markets, these costs are roughly double those of the most expensive Asian markets (Japan, South Korea and the City States) which are, in turn more than twice as pricey as some of the other Asian markets.

CONSTRUCTION LABOUR COSTS PER HOUR
Note: Labor costs are the all-inclusive costs to the employer – hourly wage, allowances, taxes, leave costs and where required, workers’ compensation, health insurance and pensions but excludes overheads, margins and overtime bonuses. Group 1 Tradespersons include plumbers and electricians.
Source: Turner and Townsend 2019 International Construction Market Survey.
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This information is for our clients and investors only. Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy and Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

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