Asian Boom Alive.

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Asian Boom Alive
August 31 2007 - Australasian Investment Review – (AIR)

China, Vietnam and Singapore are expected to show the biggest growth in construction activity over the next three to five years, according to economic forecaster and industry analyst, BIS Shrapnel.

The firm said in a study released this week that the rebound in the Asian construction industry is expected to gather momentum.

In a report entitled, Building and Construction in Asia 2006/07 to 2011 BIS Shrapnel said that most Asian countries are currently in the upturn stage of the building investment cycle, which has been triggered by sustained economic growth in the region in recent years.

The report includes forecasts for building and construction activity for China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.

It says that building and construction activity will grow most strongly in China, Vietnam and Singapore, due to rising activity in the residential building sector.

“Increasing transparency in China’s property market and higher property investment returns are attracting more foreign institutional and private equity funds to the Chinese property markets,” explained BIS Shrapnel senior project manager and study author, Adeline Wong.

“Market optimism has spilled over to the next tier of Chinese cities, which has driven robust building activity in these regions.

“We expect a greater proportion of foreign direct investment will continue to flow into China in the next few years as a result of the market liberalisation reforms following the country’s WTO membership, despite competition from an emerging India.”

Increased foreign investment has subsequently driven strong demand for office space and other commercial buildings, according to Wong.

BIS Shrapnel expects tight vacancy rates for higher grade office buildings in main Chinese cities, strong demand for space from the financial and services sectors and rising rentals will justify the construction of more premium office space, especially in Shanghai where the economy will also be boosted by the 2010 World Expo.

Whilst Beijing has the 2008 Olympic Games, activity in the two southern cities of Guangzhou and Shenzhen is driven by demand as a result of closer economic integrations of the Pearl River Delta and Hong Kong, according to Wong.

BIS Shrapnel forecasts an average of 16 to 17 million square metres of new office space will be constructed in China per annum out to 2011, compared with 15 million square metres per annum over the previous five-year period.

Wong believes local demand for housing will remain the pillar of growth for the building sector in China. “China is undergoing rapid urbanisation, with an influx of people from rural areas to cities each year driving demand for new housing.

“It’s estimated 400 million people will move to Chinese cities in the next 10 years.” BIS Shrapnel forecasts an average of 870 million square metres of new residential building will be constructed in China per annum between 2007 and 2011, compared to only 490 million square metres per annum over the five years to 2006.

Activity in China’s retail building sector is being largely driven by the aggressive expansion of international retailers, such as hypermarkets, which are taking advantage of the newly liberalised market.

Urbanisation is also driving the construction of regional shopping centres in China, and Wong expects rising household incomes and a growing affluent middle-income group will further boost retail trade.

BIS Shrapnel estimates annual retail building activity in China will average 90 million square metres between 2007 and 2011, compared with only 70 million square metres per annum over the previous five-year period.

BIS Shrapnel forecasts China’s warehouse building sector will grow strongly during the next five years, driven by demand from the logistics and distribution sectors.

“Strong demand for large distribution centres from global retailers and logistics companies will contribute to warehouse building activity. IKEA occupies a 120,000 square metre distribution centre in Shanghai, whilst Adidas utilises a 60,000 square metre warehouse.

Logistics companies DHL and a unit of Deutsche Post each has a 58,000 square metre warehouse,” said Wong.

BIS Shrapnel expects infrastructure construction activity will also be a major driver of construction spending over the next five years in China, boosted by continued investment growth in the transportation, telecommunication and utility sectors across China, especially in the western China region where the development of a national transportation network has been fast-tracked.

Copyright Australasian Investment Review.
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