Asia Pa­cific: Slow­ing but Still Grow­ing

The Jakarta Post - Magazine - - Contents - By Si­grid Zial­cita

The year thus far has been marked by sur­prises, with mo­men­tum in the re­gional econ­omy shift­ing to the de­vel­oped world, away from the emerg­ing economies that had led growth since the fi­nan­cial cri­sis. No­tably, a resur­gent Ja­pan is driv­ing the shift, fol­low­ing years of stag­na­tion, in­di­cat­ing prom­ise for Prime Min­is­ter Shinzo Abe’s new poli­cies.

At the same time, eco­nomic strides in the re­gion’s pow­er­houses – China and In­dia – have eased con­sid­er­ably. None­the­less, most ASEAN mar­kets con­tin­ued their ro­bust ex­pan­sion. As a re­sult, our base­line out­look for the re­main­der of 2013 has sev­eral changes, though re­gional real GDP is still fore­cast to ad­vance 5.0-5.5% for all of 2013.

First, Abe­nomics – a three­p­ronged ap­proach con­sist­ing of struc­tural (eco­nomic over­hauls aimed at sus­tain­ing long-term growth), mone­tary and fis­cal poli­cies – will cause Ja­pan’s GDP growth to shift to a higher gear, from an an­nual av­er­age of nearly 1.0 per­cent from 2000 to 2011 to 2.0-2.5 per­cent this year. Ad­di­tion­ally, as the world’s third­largest econ­omy, we ex­pect Ja­pan’s growth to have global sig­nif­i­cance.

Hence, Ja­pan’s re­fla­tion poli­cies, com­bined with con­tin­u­ing grad­ual im­prove­ments in the US, will fil­ter to their trad­ing part­ners within the re­gion and thus, add to up­side growth. Sec­ond, the slow­down in In­dia is ex­pected to per­sist with eco­nomic growth es­ti­mated at 5.05.5 per­cent for fis­cal year 2013-2014 es­pe­cially as eco­nomic re­forms have yet to pick up steam.

Third, we are low­er­ing our out­look for China, where growth is tran­si­tion­ing to a new nor­mal of 7.5% as pol­i­cy­mak­ers re­bal­ance the econ­omy. No­tably, if it posts a 7.5 per­cent GDP growth rate for all of 2013, it would be the slow­est growth since 1990. Lastly, in Aus­tralia, the out­look has also soft­ened on weak­en­ing sen­ti­ment in China and the re­treat­ing re­sources sec­tor, though ef­forts are un­der­way to bal­ance away from min­ing. On the up­side, both fis­cal and mone­tary poli­cies in most coun­tries have room to ma­neu­ver to be sure, es­pe­cially given the di­min­ished risk of higher in­fla­tion in the re­gion.

Of course, the out­look is not risk-free. While Europe broke out of re­ces­sion in the sec­ond quar­ter, the up­turn is far from ad­e­quate to ad­dress their deep-seated prob­lems of mass un­em­ploy­ment and high debt. Ad­di­tion­ally, the re­cov­ery in the U.S. econ­omy is gain­ing trac­tion, which in turn, has fu­elled spec­u­la­tion that the US Fed­eral Re­serve is close to a de­ci­sion to start un­wind­ing the eco­nomic stim­u­lus. In our view, we ex­pect the Fed to shift its pol­icy if and only if the US econ­omy shows ma­jor im­prove­ment. In Asia Pa­cific, the in­ex­orable slow­down in China and its spillover ef­fects on the re­gion re­mains the great­est risk. Geopol­i­tics is another source of risk. The on­go­ing ter­ri­to­rial is­sues in Asia are fu­el­ing diplo­matic ten­sions and have be­gun to im­pact eco­nomic ties.

Solid eco­nomic con­di­tions, com­bined with em­ploy­ment gains, bode well for oc­cu­pier de­mand across all 29 cities tracked within the re­gion. While over­all oc­cu­pan­cies will vary, rents are still ex­pected to ad­vance mod­er­ately in most mar­kets through next year. On the in­vest­ment front, ac­tiv­ity has surged across all re­gions (Amer­i­cas, Europe and Asia Pa­cific) thus far this year.

For Asia, such de­vel­op­ment is credited to bet­ter in­vestor sen­ti­ment, con­tin­ued re-al­lo­ca­tion of cap­i­tal to Asia, low in­ter­est rates, sup­port­ive debt mar­kets, and rel­a­tively at­trac­tive re­turns, among oth­ers. In­vest­ment ac­tiv­ity should main­tain its pos­i­tive mo­men­tum for the re­main­der of this year for sev­eral rea­sons. Even as 10-year bond yields have risen mod­estly, rates in most mar­kets are still rel­a­tively low in a his­tor­i­cal con­text. In our opin­ion, this wide yield spread will con­tinue to be a ma­jor driv­ing force for buy­ing in core mar­kets, but also grow­ing de­mand for higher-yield­ing as­sets and value-add in­vest­ments in sec­ondary or emerg­ing mar­kets. In a sce­nario where such in­vest­ment the­sis is sup­ported by pos­si­ble ris­ing rents, the in­vest­ment de­mand is ex­pected to re­main strong.

Fur­ther, over a longer pe­riod, neg­a­tive ef­fects of ris­ing rates should be at least off­set by the re­gion’s ad­van­tages, in­clud­ing healthy con­sumer de­mand and sound prop­erty fun­da­men­tals. All of th­ese fac­tors should keep prop­er­ties in Asia Pa­cific at­trac­tive for re­gional and global in­vestors dur­ing the course of 2013 es­pe­cially as an in­fla­tion hedge and to­tal re­turn ve­hi­cle. The writer is Man­ag­ing Di­rec­tor, Re­search, Cush­man & Wake­field,

Asia Pa­cific.

Jakarta Grade A of­fice rents have nearly dou­bled over the past three years, from US$20 per sqm in June 2010 to US$39 per sqm in June 2013

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