Asian Markets Offer Mixed Opportunities

SAN FRANCISCO-Increased economic expansion is on tap for China, India and even Japan, but not all markets hold equal opportunity for incoming investors. That was a major theme of a session held Thursday morning at the CB Richard Ellis World Conference here.

"All countries should demonstrate strong growth through 2010 and should help lift their surrounding neighbors," stated session moderator Rob Blain, CBRE Asia Pacific chairman and CEO.

Although Japan is a more mature market and opportunities there may be harder to find, said Blain, they do exist. Toshiro Sato, executive officer of global corporate services in Tokyo, noted that the increasing securitization of real estate, which over the past 10 years has reached the US$25-billion mark, is illustrative of the country's strengthening investment climate. The problem is that there is a shortage of good product to buy.

Also in short supply, said Sato, is prime office space in Tokyo, where the class A vacancy rate is at 0.6% and any new construction is considerably preleased. "It is clearly a landlords' market," he related.

Unlike Japan, China has been on a rapid growth trajectory. And while some have expressed concerns over its increased pace, Chris Brooke, managing director of the Greater China region, noted that the Chinese government has taken a number of measures to keep its growth at sustainable rate of around 8%. Furthermore, the government's recent changes to its policies regarding foreign investors, in which all players must be either a joint venture with a local company or a wholly owned foreign enterprise, will "take away some of the hot money," leaving only serious players.

While the government clamps down on incoming investors, Brooke reported that the firm has begun working with a number of Chinese companies seeking to expand abroad. However since none of them have centralized decision-making functions, the initiative has been slow to take off. He does anticipate that several of the domestic insurance companies, an industry that is currently heavily regulated, will be looking abroad.

Recently, India's government has begun opening up real estate ownership to offshore entities, which is resulting in considerable interest from international investors, especially those based in the US, reported Anshuman Magazine, managing director of South Asia. On the investment side, his group is currently working with such names as JP Morgan, Citigroup, AIG and several hedge funds. Magazine added that the country's regulations on retail ownership have also changed and this is likely to spark increased demand from that sector.

India's GDP growth is at 7.5% per year, a rate expected to be sustained by increasing levels of consumer consumption and employment, he said. In addition to the rising number of jobs gained through US offshoring, the country is gaining positions in the areas of software development and manufacturing as well as expansion from financial institutions.

While the Australia/New Zealand region is not a tiger in terms of economic capacity, with a stable GDP growth rate of 3.7%, "it has become a powerhouse in the international capital markets," stated Tom Southern, area president and CEO. This, he stated, is due primarily to the insatiable appetite for foreign real estate by Australia's superannuated funds.

As of May, some US$40 billion was invested in the global property markets by Australian REITs, with 80% of that total being placed in the United States, primarily in the retail and industrial sectors, noted Southern. However, the flow of funds is expected to shift. "We are seeing investment capital moving into Europe, the Middle East and Asia," he said, adding that the firm expects Asia to become a major destination for Australian funds.