SOUTHEAST ASIA MOMENTUM— CITIES ON THE RISE

BY CHRIS FOSSICK

Even before the black swan events of COVID-19, the global economy was moving into a synchronized slowdown. Yet one bright spot is the remarkable dynamism and short-to-medium-term growth prospects of many emerging cities across Southeast Asia (SEA), as outlined in our 2020 City Momentum Index.

Many cities in the region are building their infrastructure from a relatively low level that gives them the potential to surpass more mature cities worldwide. What’s more, there is now a significant opportunity for these cities to combine urban planning, placemaking, and digitalization with progressive environmental policies to create new sustainable, transport-oriented locations that are engines of economic growth and community engagement. The cities that succeed will deliver outsize returns for investors, value for corporate occupiers, and improved quality of life for workers and residents.

JLL’s City Momentum Index combines a broad range of indicators to identify cities with the strongest short-term economic and commercial real estate momentum. Three SEA cities rank in the global top 20 this year: Ho Chi Minh City and Hanoi in Vietnam and Manila in the Philippines.

Ho Chi Minh City and Hanoi benefitted from soaring exports to the United States that ticked Vietnam’s economy upwards as companies shifted parts of their supply chains there as a result of the China-US trade dispute. Pre-COVID-19, annual GDP growth estimates were forecast at more than eight per cent, and this economic momentum is reflected in healthy office market dynamics. Demographics favor Ho Chi Minh City, which placed in the global Top 10 for ‘engine room’ population, a demographic that is expected to continue to grow.

Manila’s advantageous demographics, a robust domestic economy (previously forecast at six to seven per cent GDP growth annually) and a skilled talent base support a dynamic real estate market. Business Processing Outsourcing (BPO) is driving office net absorption, as the sector moves into higher-value activities such as animation, gaming, and healthcare.

Bangkok, Singapore, Kuala Lumpur, and Jakarta have also featured on the Index over the seven years of its publication, and have accelerated to be maturing urban centers even as they continue to grow and innovate.

These fast-paced cities also face some of the greatest challenges associated with rapid urban growth. Some of these difficulties are environmental degradation, congestion, overcrowding, social inequality, homelessness, security, and affordability.

There are two massive competing pressures to transform their urban environments. On the one hand, they need to become more resilient to climate change, economic (and now health) shocks, and geopolitical disruption. On the other hand, they must act

with greater responsibility to reduce carbon emissions, embrace the circular economy, promote a more equitable society, improve personal security, and increase biodiversity.

The real estate industry will need to play a greater role in helping to meet these urban challenges by promoting sustainable, scalable, and smart development; adopting regenerative construction processes; supporting ‘good densification’; improving transparency; encouraging micro-mobility; and creating thriving, inclusive, safe, and affordable communities. The three cities on the Index are responding in many ways.

Addressing Infrastructure Deficit

Rapid urbanization and steady economic growth are putting massive pressure on existing infrastructure, and SEA cities have become among the world’s most congested.

Ho Chi Minh City and Hanoi are both responding to congestion by investing heavily in new metro networks, following Chinese cities’ approach of creating large, commuter-intensive public transport systems. A new airport is also being constructed in Ho Chi Minh City, and authorities there have sought to revive water transport through its canals and waterways to ease pressure on its roads and spur tourism development on the Saigon River, launching the city’s first water bus service in 2017.

Manila is undertaking a major infrastructure push to alleviate chronic congestion, including the construction of a new airport , the Metro Manila Subway, SkyTrain, and Manila Metro Rail Transit System Line 7.

The Jakarta Mass Rapid Transit (MRT) is already operational, and the Light Rail Transit (LRT) is due for completion in 2021.

Urban Planning

Poor urban planning and unchecked construction have led to haphazard and uneven development in many of the Top 20 cities. Pioneering SEA cities are looking to rebalance their spatial inequalities through ambitious plans to build new districts and create mechanisms to refocus development.

Ho Chi Minh City is seeking to develop a new urban center on the Thu Thiem peninsula (District 2) — which has drawn comparisons to Pudong in Shanghai — to reduce pressure on the city center and preserve historical buildings from demolition and redevelopment.

To boost infrastructure works and improve accessibility to Thu Thiem, the city has implemented a Build Transfer (BT) programme in which developers obtain land in exchange for building infrastructure.

Making Cities Smart

In Vietnam, Ho Chi Minh City and Hanoi are pushing smart city initiatives and districts to promote sustainable development. Their efforts have attracted foreign investors such as Sumitomo, Lotte Group, and ABB Group.

Manila is a participant in the ASEAN Smart Cities Network (ASCN). On this collaborative platform, ASEAN member cities exchange best practice and urban solutions, as well as catalyze bankable smart city projects.

Singapore’s ‘Smart Nation’ initiatives include smart lamp posts with LEDs that are 25 per cent more energy-efficient, Smart urban mobility autonomous vehicles, and e-government initiatives such as HealthHub.

Thailand’s Board of Investment (BOI) introduced incentives for investors to adopt smart city principles and those looking to build new large-scale mixed-use urban developments.

Malaysia’s Smart City Framework addresses challenges arising from rapid urbanization. It aims to promote the digital economy and position Malaysian cities as on par with other cities globally, among its objectives.

Cities are being forced to adapt at a pace and scale never experienced before, with huge pressures to move to a low-carbon future and to respond to climate change as well as the new reality of COVID-19 in the immediate future.

Many of these pressures are most intense in those high-momentum cities in emerging economies where the challenges of absorbing rapid demographic, social, and economic changes are most acute. Yet ‘future fit’ SEA cities are showing that it is possible to break through and to compete on the global stage.

Chris Fossick is CEO Southeast Asia at JLL.