One of the most significant trends that we have seen of late in the Asia Pacific region is the globalisation of our real estate markets. A recent report by an international property consultancy1 had stated that in 2004, close to half a trillion US dollars was invested in real estate globally. Of this figure, the Asia Pacific region accounted for 11 per cent or USD48.3 billion which represented a staggering increase of 74 per cent from the year before.

In my mind, this trend towards globalisation has been fuelled by three factors. For a start, the institutional quality of real estate offering attractive returns in the Asia Pacific region has exerted some degree of pull on investors seeking to park their money in an offshore location.

Secondly, the gap in terms of sophistication and tastes between purchasers and investors in the Asia Pacific and the West has narrowed. Increasingly, real estate, especially in the upmarket residential segments for instance, has an international market.

The third factor, which is closely linked to the second, is the fact that architecture and designs have become more international. Real estate aesthetics have now taken on a more cosmopolitan cross-cultural appeal, in that a project in any one of the capital cities in this region would readily find a market in the other major capitals in the West.

In the Asia Pacific, Japan and China are high on the list of destinations of global investors. Besides these two countries, Malaysia and South Korea are also major investment destinations, especially with the passing of REITS legislation in the former. For that matter, indirect investment vehicles such as REITS have also made Singapore and Thailand an attractive option.

Investor demand in the Asia Pacific region is especially strong in the office segment. In fact, this was the most highly traded sector accounting for 45 per cent of all capital market flows into the region for 2004. Other segments in the Asia Pacific region that have appealed to global investors include the retail and industrial sectors, with some attention being paid to the hotel and leisure sectors as well.

In Malaysia, the prospects for the office market are good with the presence of large space users from the IT and oil and gas sectors, especially in the capital, Kuala Lumpur.With rents ranging from RM3.80 to RM4.20 per square foot and yields of 7 to 8 per cent, prime office buildings are attractive options to global investors, especially those who are able to acquire entire buildings for better control and management. Nevertheless, Kuala Lumpur remains on the radar of foreign investors due to the lower cost of living, good infrastructure and reasonable entry levels.

The outlook of Singapore’s office segment has also been optimistic contributed by the financial services and IT sectors. Landlords here have become more positive and rents of prime office space are expected to see further increase by 10 to 12 per cent. Current rentals in the CBD are in the region of S$4.50 per square foot.

In Thailand, the office segment has experienced robust demand with gross rentals of grade A CBD space at 40 baht per square foot, representing a 17.6 per cent increase from the bottom level of 34 baht per square foot in 1999. This increase in demand has also reduced vacancy rates to close to pre crisis levels of 17 per cent.

This increase in global investment is seen as something that is here to stay rather than just a passing occurrence brought on by booming local markets in the region. According to an international survey2 conducted at the end of 2004, global cross-border investment activity is expected to increase significantly over the next three years.

In time, the influence this exerts on our local markets will become more apparent. It will also become increasingly crucial for real estate practitioners in the region - be it developers, agents or consultants - to position themselves to meet the challenges that come with this trend of globalisation.

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