Commercial real estate investments into Mumbai, Delhi and Bangalore not in line with their economic weight
singapore, 15 March 2017 – Asia Pacific cities are some of the fastest growing real estate markets in the world, but they have yet to catch up with their European and North American counterparts when it comes to intensity of investment.
JLL’s latest Investment Intensity Index – which compares the volume of direct commercial real estate investment in a city over a three-year period relative to its economic size – reveals that of the top 30 ranked cities, only four are in Asia Pacific: Sydney (eighth), Melbourne (16th), Hong Kong (28th) and Tokyo (30th).
This means that while places like Bangalore, Ho Chi Minh City and Shanghai are racing ahead in their speed of development as real estate markets, they still have room to grow when it comes to attracting investment proportionate to their gross domestic product (GDP).
“Although the emerging cities of Asia Pacific are attracting an ever greater share of global real estate investment, our latest index shows there is some way to go before they punch their weight in terms of investment intensity,” says Dr Megan Walters, Head of Research, Asia Pacific, JLL. “However, the balance is starting to shift. What we’re seeing is that real estate investors are looking more and more to developing cities to satisfy their diversification requirements, with an estimated 60 per cent of the global office development pipeline until 2020 projected to come from emerging markets.”
While offering huge investment potential, the report reveals that emerging world cities will need to boost transparency, improve regulatory oversight and build robust financial platforms to attract real estate investors in the long-term.
What’s holding back CRE investments into Mumbai, Delhi and Bangalore?
"As the report notes, the Indian ‘Emerging World Cities’ of Mumbai, Delhi and Bangalore are not yet attracting direct commercial real estate investment volumes to match their economic weight" says Ramesh Nair, CEO & Country Head, JLL India. "Although they are among the world’s fastest-growing city economies, there are a number of issues which may be partly responsible for holding back direct investment, including market transparency - they are ranked as Semi Transparent Markets in JLL’s 2016 Global Real Estate Transparency Index. Other factors are infrastructure challenges and ownership styles (such as strata-title sales or developers / investors holding on to stock). Contributing to the lower direct transaction volumes is that investors have frequently looked to development or debt lending rather than direct investment to gain exposure to real estate in these cities."
However, direct investment into India increased by 11% last year to US$2.3 billion, and if these cities are able to continue boosting transparency, improve regulatory oversight and build strong financial platforms they will be able to increase their attractiveness to investors. An example of this is the interest shown from some global investors last year in building portfolios in India to list under the new REITs structures, which have helped to improve market transparency in other countries.
JLL’s Investment Intensity Index compares the volume of direct commercial real estate investment in a city over a three-year period relative to the city’s current economic size, measured by GDP. The Index provides an approximate measure of real estate market liquidity, as well as a useful barometer of a city’s overall economic health, highlighting cities that are punching above their weight in terms of attracting real estate investment.
Covering 150 cities around the world, the 2017 edition identifies the 30 cities that top the ranking for real estate investment relative to their economic size. It also reveals the top cities for cross-border investment intensity, identify the leading ‘Emerging World Cities’ and provide a breakdown of which cities are attracting the most intensive investment activity in the office, retail, hotel and logistics sectors.
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. JLL is a Fortune 500 company with, as of December 31, 2015, revenue of $6.0 billion and fee revenue of $5.2 billion, more than 280 corporate offices, operations in over 80 countries and a global workforce of more than 70,000. On behalf of its clients, the company provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. As of September 30, 2016, its investment management business, LaSalle Investment Management, has $59.7 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.
JLL has over 50 years of experience in Asia Pacific, with 36,000 employees operating in 94 offices in 16 countries across the region. The firm won 15 awards at the International Property Awards Asia Pacific in 2016 and was named number one real estate investment advisory firm in Asia Pacific for the fifth consecutive year by Real Capital Analytics. www.ap.jll.com.