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OUR COMPANY AFFILIATES

CBRE GROUP

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

APAC office markets, which have enjoyed structural demand from the transformation of the region’s economies from their agricultural/industrial bases toward the services sector, have long been investor favorites. Some major office business districts in the region today did not even exist 20 or so years ago, such has been the burgeoning need for space. Other precincts, such as those in fringe CBD locations – Melbourne’s Southbank, North Sydney or parts of Tokyo’s inner five wards for example – are enjoying the spillover effects of their tight nearby CBD markets. They are also benefitting from public and private renewal investments into better amenities and public transit. Several of the region’s office markets rank highly in the global league as the most expensive space on a per square meter basis – with Central Hong Kong being the highest – and this has forced tenants to look for more alternative locations and spaces or to consider more flexible ways of doing business. Many of the region’s major office markets have performed very well in the past five years. According to MSCI, the unlevered, local-currency-denominated annual total returns for the five years ended 2018 were 15.2%, 13.4% and 12.5% for Sydney, Melbourne and Auckland, respectively. Several emerging city office markets, such as Bangkok, delivered double-digit returns as well.

OFFICE CAPITAL VALUES CHARGE AHEAD OF RENTAL VALUES

For the APAC region (in aggregate), office capital values experienced a strong uplift over the past decade. By the end of 2010, the APAC office capital value index surpassed that of mid-2008 (the pre GFC peak) and has been on a fairly consistent upward trend since then (CBRE 2019 Q2). However, rental values, have taken much longer to recover and indeed may only surpass their pre GFC peak this year. But this regional average disguises some highly divergent metro level trends: strong rental uplift in Tier 1 Chinese cities, Hong Kong, Sydney and Melbourne has been recorded but with weaker performances from Seoul, Perth, and Tier 2 Chinese cities. Major Japanese office market rents have recovered well in the past five years but had fallen considerably during and after the GFC.

SEPTEMBER 2019

20,704.37

3.8%

Nikkei 225

25,724.73

7.4%

Hang Seng

2,886.24

1.6%

Shanghai Composite

108.59

2.6%

Yen/Dollar

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

ASIA PACIFIC OFFICE RENTAL AND CAPITAL VALUE INDEXES
PRINCIPAL CONTRIBUTORS:
 
Shane Taylor
Juliet Cha
OFFICE INVESTMENT TRANSACTION VOLUMES SOLID

Office constitutes a hefty 39.3% of the MSCI unlisted property index for Asia Pacific and in any given year its share of total transaction volumes in the region can be even larger. Among many domestic institutional investors allocating to real estate for the first time, it is often their sector of first choice. According to RCA, 2018 saw USD 90 billion of office transactions across APAC, or about 50% of the total transaction volume of standing stabilized real estate. Several metros, notably Hong Kong and Seoul saw their largest office transaction volumes by far. The first half of this year has seen an overall slowdown of property trades. Nonetheless in 1H 2019, some USD 40.6 billion of office properties were transacted.

ANNUAL OFFICE TRANSACTION VOLUMES IN APAC: BY COUNTRY
Note: Transactions include properties and portfolios USD 10 million and greater.
Source: Real Capital Analytics
JAPAN OFFICE VACANCY AT A RECORD LOW

Almost all the major cities in Japan that we track are currently enjoying sub 1% office vacancy rates. In several cases, this holds true not only for the inner-city submarkets but also suburban office precincts and for Prime, Grade A and Grade B segments. By some measures, vacancy rates are even lower than they were in 2006/07, the previous cyclical record. In the inner five wards submarket of Tokyo, office vacancy has fallen for offices of all floorplate sizes since 2012, with the largest sized offices leading this trend (Sanko Estate). Although there are several labor market constraints given the very low unemployment rate, service sector occupiers are consolidating their space needs, upgrading to better facilities/locations and driving rental growth back up towards pre-GFC levels.

VACANCY RATES BY OFFICE SIZE: TOKYO FIVE WARDS
Sources: Sanko Estate, CBRE Global Investors
AUSTRALIAN OFFICE CAP RATE COMPRESSION TRENDS

Notable cap rate compression has been observed in the CBD office markets of Sydney and Melbourne since 2012. Their other submarkets and the other Australian cities followed in the next year or two. Such a repricing is unsurprising given their relatively high yield levels and a supply-demand balance which has been moving in landlord’s favor. Investors in Sydney and Melburne’s CBDs were rewarded with effective annual rental growth of over 14% and 7% respectively in 2018 alone (CBRE, 2019). But not all Australian markets are as strong. Vacancy rates for prime stock in the Perth and Adelaide CBDs are 12% and 19% respectively and their secondary CBD stock vacancy rates are 13% and 27% respectively (Property Council of Australia).

OFFICE CAP RATES IN MAJOR AUSTRALIAN SUBMARKETS
Source: MSCI
SEOUL OFFICE CONTINUES TO DISAPPOINT

In contrast to many of the other major office markets in the region, Seoul has not enjoyed much of an occupancy recovery in recent years. The tight conditions just prior to the GFC triggered commencements for a wave of new office supply in all three of its business districts which delivered in the demand-challenged, post-GFC era. But new construction failed to pull back to allow a recovery in Seoul. Thus, overall vacancy moved up to double digit territory and has been stuck there for almost the past five years. This has increased leasing incentives and left effective rental growth flat or barely positive. But this hasn’t prevented interest in the sector from investors: last year USD 13 billion in Seoul office transactions took place – a new record (RCA).

SEOUL OFFICE SUPPLY,
DEMAND AND VACANCY TRENDS
Source: CBRE ERIX
Related Content

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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