Mumbai : Demand for logistics infrastructure is booming in India due to the introduction of Good and Services Tax (GST) that has revolutionised how goods are delivered across the country, according to the Emerging Trends in Real Estate Asia Pacific® 2019, a real estate forecast jointly published by the Urban Land Institute (ULI) and PwC. This has also been helped by the Government of India according infrastructure status to warehousing projects.

Looking at Indian cities, Mumbai stands out with respect to demand for high-quality office space. The city is also seeing a strong growth in coworking assets. On the retail front, high-end malls continue to perform well if properly managed. However, mid-tier facilities are often unprofitable, given that Indian consumers are migrating online.

Looking at the Asia Pacific region as a whole, ongoing competition among investors to place capital is continuing to shape how investors approach the sourcing of assets, despite signs the market may now be approaching a cyclical top. In particular, value-add plays continue to be a focus, as owners look to upgrade assets by providing more flexibility, better user experience, and improvements leveraging design and technology functions. As a result, investors today say they are likely to be more site specific, working from the ground up rather than the top down.

Logistics facilities continue to be a go-to investment: The only sector where investor opinions were uniformly bullish, investment allocations to the sector have risen significantly in 2018.

Co-living as a template for future housing: As cities are becoming denser and housing costs rise, more developers are looking to co-living as a way to pack more people into smaller areas.

Capital flows remain strong: The ongoing buildup of liquidity across the Asia Pacific region still leads to huge sums of money crossing borders, to be invested in foreign real estate assets. Strong outflows in the region seem certain to continue, especially with new reserves from Japan likely to enter the mix in 2019.

“India’s rapidly growing capital markets mean demand for high-quality offices is booming in Mumbai,” said John Fitzgerald, CEO of ULI Asia Pacific. “The report shows that despite apparently high vacancies, ongoing shortages of modern office stock mean new supply tends to be absorbed quickly.”

“India continues to remain one of the most attractive investment destinations in the Asia Pacific region. With most of the other cities, near the top of the cycle in terms of rent and capital values, India still offers value creation opportunities,” added Bhairav Dalal, Partner – Real Estate Tax, PwC India. “Core investments continue to remain the favourite with a few moving towards build-to-core. Demand for buying and holding retail assets is certainly moving northwards. Logistics and coworking play continues to evolve rapidly, although some investors have expressed differential opinion over their sustainability. Data centres and student housing are the new entrants in terms of alternatives. 2019 will be an interesting year for real estate with India’s first domestic REIT listing. We foresee India to remain an important investment destination for real estate investors.”

The Emerging Trends report, which is being released at a series of events across Asia over the next several weeks, provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area. It is based on over 350 survey responses received from real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.

The top five markets for investment and development in 2019:

• Melbourne (first in investment, first in development) – Melbourne has jumped ahead of Sydney this year. It offers a constrained office supply pipeline, good yield spread over the cost of debt and sovereign bonds, a deep, liquid, core market and fair prospects for rental growth.
• Singapore (second in investment, eighth in development) – An improvement in Singapore’s office market has enabled the city to take the second spot in investment rankings, as it continues to rebound from cyclical lows.
• Sydney (Third in investment, third in development) – Sydney remains near the top of the rankings for the same reasons as Melbourne. The city is a favourite of global investors due to relatively high returns and as a safe-haven play. Competition for assets has helped sustain pricing, while low vacancies and growing demand for space suggest rents will continue to rise.
• Tokyo (fourth in investment, fourth in development) – Tokyo’s move to the fourth spot is somewhat surprising after last year’s drop, but probably reflects what has always made it a favourite for institutional buyers: cheap finance, attractive leverage, a good spread over interest rates, and a large stock of investment-grade assets.
• Osaka (fifth in investment, sixth in development) – The lack of reasonably priced core assets in Tokyo continues to push investors into regional Japan, where local economies are now increasingly mature and stable. With supply tight in both residential and office sectors, the city is now probably the top market outside the capital.

Leading buy/hold/sell ratings for the various asset classes are as follows:

• Office — buy Ho Chi Minh City and Tokyo, sell Taipei and Auckland.
• Residential — buy Ho Chi Minh City and Bangalore, sell Kuala Lumpur and Auckland.
• Retail — buy Ho Chi Min City and Mumbai, sell Taipei and Kuala Lumpur.
• Industrial/distribution — buy Bangalore and Mumbai, sell Taipei and Kuala Lumpur.
• Hotels – buy Tokyo and Ho Chi Minh City, sell Taipei and Beijing.