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BOSTON-New reports from Boston-based Colliers International and from the Washington, DC-based Urban Land Institute and New York City-based PricewaterhouseCoopers LLC reveal the effect of the US sub-prime mortgage crisis has finally begun to ripple through industrial property markets across the Asia Pacific region. In the words of the latter report, “Industry experts expect Asia’s day of reckoning is just around the corner,” with analysts anticipating falling asset prices, rising cap rates, deteriorating debt markets, increasing foreclosures and bankruptcies and plummeting transaction volumes over the coming year.

According to Colliers’ biannual Asia Pacific Industrial Market Overview, released Dec. 1, the growth of the industrial property markets in most Asia Pacific cities has slowed compared to the previous review period. The report, which covers 12 cities in eight countries, says the economic downturn in major economies around the world has affected demand for exports by Asia Pacific cities, which in turn has reduced demand for industrial premises and slowed new constructions.

Acquisitions have also dwindled as the uncertainties in global financial markets, tightening credit conditions and increased funding costs have dampened investor interest. According to New York City-based Real Capital Analytics, Asia-Pacific property sales plunged 68% in Q3, compared with 18% year over year through August.

On the other hand, say Colliers researchers, the same set of factors has made leasing more cost-effective than owning, lending strength to the rental market. Unfortunately, the shift is not large enough to keep vacancies from rising or rents from falling. According to the report, industrial rents in most markets have dropped since April.

With the global economy likely to enter into a protracted downturn, Colliers says the Asia Pacific industrial property markets can be expected to cool further. While the firm believes Melbourne, Beijing, Shanghai, Delhi and Jakarta may to varying extent see upsides in rents and land and capital values, those in Sydney, Hong Kong, Singapore, Tokyo, Auckland and Wellington are forecast to remain flat or slide in the next 12 months.

According to the ULI/PWC report, Emerging Trends in Real Estate Asia Pacific 2009, released Dec. 3, the industrial/distribution sector ranks second to offices for favored investment property types. Shanghai gets the top buy rating, followed by Ho Chi Minh City, Bangalore, Mumbai and Guangzhou.

But as the report points out, the overall investment market is itself weak, making the industrial sector’s high standing at best a silver lining in a heavily overcast sky. “Asia shares the same liquidity crises that the balance of the world is facing,” says Stephen Blank, ULI senior resident fellow for finance. “Financial institutions, whether international or national, regional or local, are reluctant to extend credit as deleveraging reduces balance sheet lending capacity.”

At the same time, the report notes the “moment of truth” has yet to arrive in most part of the Asia Pacific region. The exceptions are China and Japan, where the credit squeeze began earlier. But the ULI and PWC researchers make it clear the crisis will ultimately hit all areas, with the need to get takeout loans to replace construction financing looming as the likely catalyst.

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