SINGAPORE, January 15, 2015 – Global energy prices have plummeted over the past six months, raising concern in some corners of the global economy but for Asian real estate markets the effect will be largely beneficial, according to JLL.
- Four out of the top five oil importing nations are within Asia Pacific
- Energy price decline supports industrial output
- Increased demand in the retail sector as costs fall for consumers
Oil prices have more than halved since June 2014 and, for the first time since 2009, Brent crude oil dipped below US$50 a barrel. US crude also fell below US$50 a barrel.
However, unlike the 2009 price crash, which was driven primarily by a dip in demand, price declines in recent months are a result of increasing supply.
With Asia’s reliance on imported energy, balanced with its strong position as an exporter of goods to the West, lower energy expenditure should improve trade balances and support higher growth rates across Asia Pacific markets.
Nicholas Wilson, Senior Manager, Asia Pacific Capital Markets, JLL, said: “The key winners in the region’s real estate market are the retail and logistics sectors. Both logistics and retail markets will benefit from improving household balance sheets, as energy costs absorb less consumer income. This should result in improving demand for discretionary goods and will support retail and e-commerce spending. Logistics markets will also benefit from falling transportation costs, a key component for the market. Real estate developers are also likely to see some benefit from falling prices as building materials and transport costs will ease upward pressure on construction outlay.”
The large energy dependent economies of China, Japan, Korea and India will be net beneficiaries of lower oil prices and as the largest markets in Asia Pacific, this could reverberate throughout the region and provide downstream support to the developing economies.
Wilson continued: “Of the top 20 global oil exporters, none are in the Asia Pacific region but, interestingly, four out of the top five oil importing nations are within Asia Pacific, namely China, Japan, India and South Korea. In addition, energy expenditure in Asia Pacific nations, as a percentage of GDP, is higher than we see in the US and Europe, so price declines will be more beneficial to Asian economies, relatively speaking.”
Nirav Kothary, Head – Industrial Services, JLL India says, ““From a perspective of India, lower energy prices definitely have a very positive impact on the logistics sector – as no reduced transportation cost, which happens to be more that 35% of total logistics cost in India. The Indian logistics sector is expected to ride on this advantage together with the current surge in e-commerce demand in the country to position itself even more advantageously.”
JLL’s Asia Pacific capital markets team comprises 300 people working in 80 offices across the region. In 2013 JLL Asia Pacific Capital Markets was ranked top real estate investment advisor in Asia Pacific by Real Capital Analytics (RCA), advising on over US$21.5 billion of commercial real estate investment transactions across the region, equating to 36 percent market share.