Author: bsullivan

Vincent Lottefier, strategic advisor to IWG and president of Co-Working Future, explores how tech is increasingly at the heart of the flexible workspace sector 

The real estate market is getting a digital makeover. It’s already making waves, and we’re starting to see the names of innovative new “proptech” leaders plastered on “TO LET” signs outside homes.

In recent years, the rise of proptech – or real estate technology – is shaking things up. Globally, there are now more than 6,000 proptech businesses and, last year, more than $US4.6 billion of investment was ploughed into their growth.  And for IWG, it’s really exciting, as we’re seeing this new industry impacting the flexible workspace realm.

We’re in the thick of the Fourth Industrial Revolution – an era of automation and digital processes, powered by blockchain, artificial intelligence and augmented reality. So it makes sense that the way we lease, rent, buy and occupy property follows suit.

Antony Slumbers, a leading development and technology strategist in real estate recently wrote: “Beyond our existing real estate skills, we need to layer on top ‘modern’ hardware, high speed connectivity and cloud computing.  All of this as a platform for designing the data science and analytics the best real estate operators will apply to the real-time data points emanating from the Internet of Things networks. Into the mix will also be woven generative design, building information modelling (BIM), digital twins, drones, 3D printing, virtual and/or augmented reality [and] machine learning.”

As customers have embraced digital in most areas of their life, industries need to keep up with this, and find new ways to serve them. And the real estate industry is ready and waiting.

In the UK alone, online retail brokers have already captured 5% of the property market, according to Alex Gosling, CEO of online estate agent House Simple.

According to British estate agent Savills, the US prop tech market has had the most funding in the past decade, gaining 57% of total global investment. Spanish proptech companies have had the second largest amount (12.4%), while UK-based startups rank third (10.8%).

Proptech unicorns (businesses worth more than US$1 billion) include New York-based Compass, Chicago’s SMS Assist and San Francisco’s Opendoor.

Proptech innovators simplify the property market for landlords and consumers alike.

They challenge the status quo in real estate, and sometimes they disrupt it completely.

They streamline age-old processes of renting or purchasing real estate, managing and maintaining buildings, cutting out middle-parties where it makes sense to, and connect the dots between tenants or and their perfect property – be it a home or a co-working space.

Some proptech companies home in on a specific area of the real estate realm – like property management and repairs (like SMS Assist), building algorithms for buying, renting or selling (such as Open Door), or creating a real estate portal (Home Link). Others take a more holistic approach and re-think traditional real estate models from the ground up (enter Purple Bricks).

For the flexible workspace sector, proptech innovation brings huge potential and helps providers create more value for tenants. Augmented reality and virtual reality tours of work space, chatbots giving 24/7 tenant support, biometric security tech – these are some of the ways proptech could enhance co-working infrastructure.

IWG has already entered the proptech realm with its IWG Broker app. Available on iOS and Android, the app makes it easier than ever for agents and brokers to submit, track and manage referrals across all of IWG’s brands: Regus, Spaces, No18, HQ and Signature by Regus.  At the swipe of a smartphone, representatives can…

Economic conditions in the US continue along a path of steady improvement, with the latest GDP growth rate of 4.1% (annualized), signifying the strongest rate of growth in four years.

Robust economic growth teamed with strong employment data and upward pressure on inflation suggest the likelihood of further rate hikes over the course of the year.

US interest rate futures indicate traders are pricing in a 94% probability of a rate hike in September to 2.00%-2.25%, with a further 68% probability of an additional hike in December to 2.25%-2.50%.

Emerging markets currencies are becoming more volatile

Continued upward movements of US interest rates are starting to impact Asian real estate markets in a number of ways. With monetary policy positions in the Asia Pacific region sitting across a wide spectrum, the impact has been quite market specific.

Firstly, some of the emerging markets (EMs) are experiencing more volatility around their capital inflows and outflows, as USD fixed-income assets start to look more attractive. This has put a lot of pressure on EMs currencies, which have depreciated against the USD. As a result, we have seen a number of EMs supporting their currencies and stemming FX induced inflation, with India, Indonesia and the Philippines all shifting rates higher.

Hong Kong currency peg is placing upward pressure on rates

Hong Kong on the other hand is feeling some pressure due to the HKD / USD currency peg. Short term rates in Hong Kong have lifted over the past 6 to 12 months, but should the Hibor / US Libor spread widen, the HKMA will likely undertake a bill issuance to mop up excess liquidity and defend the currency peg.

On the real estate front, tight controls around leverage have left the market as a largely equity driven investment. However, if interest rates continue to shift higher, the proposition for leveraging real estate is likely to deteriorate further given that most core assets yields are already below typical financing costs.

Australia hedging costs have fallen

Interest rates in Australia are expected to remain stable for the time being. This is causing some concern around the Australian dollar. The USD interest rate curve now sits at a premium to the AUD curve for the first time since 2002.

Given the escalating trade tensions between the US and China, Australia also remains exposed from a commodity and trade perspective. Nevertheless, real estate assets and financing costs have been less affected in Australia, and cross border investment demand remains healthy – potentially supported by more favorable FX hedging cost.

While domestic regulatory oversight has opened up some lending gaps, much of the alternative finance continues to focus on high yield mezzanine loans. Opportunities in this segment of the market will become more difficult to come by, particularly with the residential development cycle starting to mature.

Foreign bank lending volumes have also accelerated quite significantly over the past 18 months which is providing…

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The self-storage industry in Asia is evolving as the notion of storing personal belongings outside the home catches on.

Outside of Japan and Australia, Hong Kong remains the most established Asian market with an estimated 418 facilities, a number that compares closely to China’s total facilities.

However, there is potential for further market growth.

Per capita stock of self-storage facilities in eight logistics markets in Asia (Hong Kong, China, Japan, Taiwan, Singapore, Malaysia, Philippines and Thailand) currently averages less than 0.01 sqm, significantly below the 0.1-0.2 sqm in the U.K. and Australia, and one sqm per capita in the U.S.

Self-storage operators have a potentially very viable product

The average occupancy rate in more established Asian markets as well as the U.S. stood above 80% during 2018, although China, Taiwan and Southeast Asia saw slightly lower levels.

Moreover, a good customer mix (on average 70% personal users and 30% business users in Asia) means that the sector is less susceptible to fluctuations in business cycle as compared with other commercial real estate.

High housing prices and small living space should continue to drive personal demand for self-storage, while corporates and e-commerce platforms will likely drive business demand.

Rents charged by operators to end-users enjoy a good spread over typical industrial rents paid to the landlords in major markets. For example, the average premium is about USD 20 per sqm per month in Singapore and up to USD 50 in Hong Kong.

Investors take a closer look

Investors are taking a closer look at the self-storage sector because of a lack of available products in traditional commercial real estate. In addition, rising asset values has squeezed investment yields in core sectors to record-low.

We estimate alternative investment sectors can often generate rental yields 100-200 basis points higher than traditional real estate assets.

Investment activity in the Asia Pacific self-storage sector has been rising. Transaction volumes between 2015 and 2018 averaged only USD 120 million per year, and were dominated by Australia and New Zealand.

Momentum in investment activity increased in 2019, as CapitaLand divested its interest in self-storage subsidiary StorHub, one of Singapore’s largest self-storage networks, for USD 136 million.

A number of other notable deals have also taken place. Private equity firm InfraRed NF announced its acquisition of a 90% stake in Hong Kong self-storage provider RedBox Storage Limited in April.

In May 2018, RedBox also invested USD 28 million in China Mini Storage, a technology-led self-storage provider and one of the largest mini self-storage operators in China.

We expect more investment activity because of the growing interest in alternative real estate and as operators want to accelerate market consolidation through acquisitions.

Earlier this year, Hong Kong-based self-storage provider Boxful acquired its Taiwanese competitor ALL IN Premium Storage for an undisclosed…

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Condominium developers are expected to face greater challenge in 2019 due to increasing economic uncertainty as well as specific factors affecting condominium market.

For example, the demand for condo has been somewhat absorbed and there are a number of remaining unsold units covering a wide range of prices amid the imbalance between purchasing power and selling price.

Moreover, new regulatory and legal requirements have become effective. These factors have prompted business operators to attach greater importance on their business plan adjustments.             

The findings show that more than 77 percent of respondents, who are interested in buying a condo between 2019-2020, said they want to purchase a condo as their residence.

Real demand for condominiums still strong

The real demand for condominiums still exists, as reflected by a survey to determine the demand for residential properties in Bangkok and suburbs by KResearch.

As property developers are now stepping up their marketing promotions to attract homebuyers, this may present a golden opportunity for consumers who are planning to buy a condo. They now have a variety of choices consisting of both old and new projects, covering a wide range of prices, to choose from.  

At any rate, since the purchase of residential property is considered a long-term financial liability, the buyers must take into account their debt service ability in the long run together with additional expenses that may incur and affect their ability to pay installments.                  

Investors more cautious

Investors planning to purchase a condo for renting out may have to be more cautious due to various factors.

For example, the initial cost of investment becomes more expensive because of the Bank of Thailand’s loan-to-value (LTV) policy to govern the housing loans. Additionally, rental income from apartment may not generate high profit as seen in the past due to stronger competition. Tenants have more choices and greater bargaining power.

Also, capital gain is high only in certain segment and customers may have to spend a longer period of time before they can sell the property. This can cause an opportunity cost if the investment return falls short of expectation.            

 Due to the aforesaid situation, KResearch views that the total condo units for sales in 2019 will be around 61,000-64,000, contracting around 12-16 percent from 2018 and representing the first decline since 2017. 

Condo market in 2019: Developers are cautious with the volume of project launches expected to slow to 61,000 – 64,000 units.

For housing in Bangkok and its vicinity, those who want to buy a house should be able to smile this year due to many house and condominium promotions.

According to information from the Government Housing Bank (GHB), there are nearly 1,600 residential projects in Bangkok and its vicinity which have not been sold up.

500,000 units for sale in Bangkok

Mr. Wichai Wiratkaphan, Acting Director of Real Estate Information Center, GHB, said the survey on the supply of and demand for residential projects that are being sold during the second half of 2018 in Bangkok and its vicinity found that there were 1,597 projects, almost 500,000 units, under sale, an increase of 7.7 percent from the same period in 2017.

They are mostly in a group of housing and condominium projects.

This reflects that the real estate business in 2018 has obviously recovered thanks to the government’s economic stimulus measures, competition in housing loans of financial institutions and supporting factors from economic growth.

The ownerships of over 360,000 units, worth over eight billion baht, were transferred throughout the country in 2018.

However, the outlook of the real estate business across the country in 2019 is likely to shrink slightly to wait for the new government’s economic policy and clarity of the economic condition in the country.

Demand for housing has decreased

This is a sign that the demand for housing has decreased. The demand for residential projects, both houses and condominiums, launched during the past 1-2 years, under sale and construction is still relatively high.

Therefore, real estate entrepreneurs need to focus on the existing supply of and demand for the housing market before adjusting their business plan. But on the other hand, it is considered good for those who wish to own a house as they will be able to choose more diverse homes and condos in terms of both price and location. It is expected that the number of transfers of housing ownership in 2019 will be reduced by 7.7 percent.

National News Bureau Of Thailand

Office occupational demand was robust across Asia Pacific in 2018, with overall leasing activity up an impressive 20% for the whole year.

Financial, professional services and tech firms stood out as key demand drivers, while flexible space operators are still a notable source of leasing.

Demand for office space remains healthy in 2019

Occupational demand remains healthy entering 2019, despite significant downside risks to the outlook – e.g. China-US trade war, no-deal Brexit, etc. Companies across the region continue to expand to varying degrees, according to the Manpower Group’s Employment Outlook Survey 1Q19.

More employers plan to increase rather than decrease staffing levels in most Asia Pacific countries, with employers in Japan reporting the strongest hiring intentions.

The outlook for the office occupational market in Asia Pacific continues to be bright and JLL holds the view that 2019’s gross leasing volumes will be able to match that of 2018’s (see chart 1). Occupational demand is projected to sustain and remain broad-based with activity led by technology and financial services sector as well as flexible space operators.

By industry, technology companies continue to report optimistic hiring plans regionally, albeit there are reports that Chinese tech firms are re-evaluating their staffing needs.

In India, the hiring of tech talent will double in 2019 according to industry estimates, driven by the adoption of emerging technologies such as artificial intelligence (AI), machine learning, and robotics for automation.

Elsewhere in the region, digitization is gathering pace and specialists in the niche areas of cyber security, big data and AI are in high demand.

The financial services sector, traditionally the main demand driver for the office occupational market, will likely see some weakening this year. Singapore and Australia report weaker employment prospect in the finance, insurance and real estate sector entering 2019.

Financials in China become more conservative as uncertainty looms before the 1 March deadline for a trade deal with the US. In Hong Kong, stock market volatility has weakened hiring prospects in the financial sector and thus demand for CBD office space.

Professional services firms should continue to take up more space in 2019 whilst mitigating real estate costs through relocation. Accounting and law firms continue to centralize non-revenue functions in lower-cost locations.

For example, accounting firms such as KPMG are expanding aggressively in India. The continuing trend towards outsourcing will also generate significant demand in low-cost locations such as Manila and Kuala Lumpur.

The flexible space industry has been an important source of leasing demand in recent years, and international flex space operators continue to expand in many markets in 2018. We expect flex space operators to remain resilient during economic downturns. Corporates may opt for flex space instead of traditionally leased space as well as employ more contract and part-time staff in uncertain times. Moreover,…

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The Asia Pacific region is expected to be the standout region from a growth standpoint, with hotel investment volumes forecasted to grow by 15% year-on-year in 2019.

Japan is expected to be one of the most active markets in 2019, with investor sentiment driven by the 2019 Rugby World Cup and the 2020 Tokyo Olympic Games. Investment momentum will continue to rise as investors explore selling hotel assets to capitalise on the tourism boom.

Singapore is currently riding the wave of a boom in hotel land sales which has reignited the interest of would-be sellers who are considering to sell their hotel properties.

In a tightly held market such as Singapore, we expect to see heightened sales activity as owners exit at record prices and newcomers seek long-term strategic opportunities.

With sustained demand in international visitor arrivals, robust trading performance, continued infrastructure development and political stability, Thailand’s capital as well as its key resort markets of Phuket and Koh Samui will remain highly sought-after by investors.

It would be another year of strong cross-border transactions activity for Australia, particularly in Sydney, Melbourne, Brisbane and Perth, which will remain firmly on the radar of the Asian buyers.

Lastly, we will see Maldives take centre stage in the Indian Ocean as new capital sources enter the market in search of higher yield opportunities as we witness several landmark sales likely to conclude during the course of the year.

Top three hotel trends in 2019:

1. Experience economy reaches the luxury sector: Modern-day luxury consumers are increasingly seeking out experiences, placing less emphasis on acquiring material goods. Hotel markets are seeing strong demand for high-end experiential luxury travel.
2. Hotels embracing co-working: There has been a strong demand for communal workspace as companies increasingly offer flexible working policies. Hotel operators are maximising real estate and boosting revenue by creatively repurposing existing, under-utilised spaces.
3. New brands a beacon for growth: With operating costs for full-service hotels continuing to inch up, and development costs for those hotels with vast facilities dampening investment returns in many markets, we expected to see top companies launching new brands, focusing on development effort on their select brands to drive distribution.

Download the Hotel Investment Outlook 2019 report to get better insight on the outlook and trends shaping the market.

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Over the past five years, global investment into industrial and logistics property has doubled, reaching a total of US$126 billion in 2017.

A sector traditionally prized for its stable income has recently seen dynamic capital growth, and logistics facilities now attract lower yields than retail property in some markets.

This evolution has been driven by exceptionally broad investor appetite for the sector, ranging from private equity vehicles and institutional funds to private individuals and families. Platform and portfolio transactions have become increasingly common among larger investors as they seek large-scale assets.

In Western markets, the rise in online shopping is one of the key drivers stimulating this apparently insatiable appetite, as retailer demand for modern distribution facilities continues to grow.

In Europe, rental growth forecasts for the sector are healthy, as stock is scarce and demand high. Asia-Pacific markets share these characteristics too.

However, as these five key trends demonstrate, they face an arguably more diverse mix of investment drivers, encompassing global trade, manufacturing growth and new infrastructure opportunities.

China moves up the value chain

China’s growth over the past 30 years has been largely based on its status as the workshop of the world. Today, however, the “Made in China 2025” initiative represents a concerted effort to move China up the value chain, with the ultimate aim being for China to compete globally in manufacturing innovative technologies.

Modern logistics facilities and high-tech business parks are seeking more investment to upgrade existing sites and regenerate older brownfield sites.

E-commerce in South-East Asia

A fragmented market, lack of easy online payment methods and a strong shopping mall culture means e-commerce has not yet had the same powerful impact in South-East Asia that it has had in other regions.

However, with both Alibaba and Tencent investing heavily in the region in recent months and the introduction of cross-border payment solutions, there is now significant scope for growth (see chart).

And, as the retail market moves online, demand for modern logistics warehousing in close proximit y to major urban centres and transport links will only increase further. Key trends behind the growth in Asia-Pacific’s industrial and logistics market – Knight Frank

China’s continued economic slowdown is reshaping the country’s real estate market, as investor confidence remains high.

Tax cuts, increased infrastructure spending and demand from foreign investors will support China’s real estate market in 2019 in the wake of slower economic growth.

China’s economy grew 6.4 percent during the last three months of 2018, the slowest pace since the global financial crisis.

The property market accounts a meaningful proportion of China’s GDP growth and Beijing has, in the past, deployed stimulus measures to support the market.

But the government’s on-going effort to deleverage the nation’s financial system has prompted a new approach.

“Real estate plays a very important role and has a direct and indirect impact on China’s GDP,”

Daniel Yao, head of research, JLL China.

To keep property prices under control, the central bank is pumping more liquidity into the economy to boost consumer confidence and the government is pushing banks to increase lending while making widespread corporate and income tax cuts.

“Previously the government would loosen real estate policy in response to a major slowdown, especially in the residential market, but they remain strict,” adds Yao.

Fresh infrastructure investment is also expected to boost the economy but the focus will be less on mega projects such as new metro lines, highways and airports, and instead on technology and telecoms infrastructure, supporting 5G networks and investment in artificial intelligence, for example.

This will create demand in the office and logistics real estate sectors. What slower GDP growth means for China’s real estate market | The Investor