SINGAPORE - 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.
These findings are part of 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.
Of the top 30 ranked cities, only four are in Asia Pacific, namely - Sydney (in eighth place), Melbourne (16th), Hong Kong (28th) and Tokyo (30th), the company said in a release on Wednesday (March 15).
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.
Chinese cities' are increasing in influence, the study found, with Shanghai and Beijing identified as some of the world's fastest growing city economies.
"Shanghai and Beijing are making their mark globally as real estate investment destinations," says Mr Joe Zhou, head of research, China, JLL. "This highlights an immense opportunity for growth."
Several other 'emerging world cities' have yet to realise their full potential as real estate investor destinations due to issues ranging from regulatory transparency, infrastructure challenges, market restrictions and ownership styles to economic and political volatility, JLL said.
These include cities such as Manila and Jakarta as well as Mumbai, Delhi and Bangalore, where investors frequently look to real estate development and debt to gain exposure.
However, a number of emerging megacities - such as Kuala Lumpur and Bangkok - are generating higher investor interest. These cities are set to draw increased investment activity in the coming years as the quality of stock and transparency improves.