ASIA - A softer-than-expected landing and supply limitations will continue to boost real estate rental growth across Asia, according to a report published by RREEF.

Deutsche Bank’s real estate subsidiary said expansion of the financial services sector in the region’s main cities will drive up office rents in 2007, as sustained economic momentum continues to pull in overseas capital.

Clustering of financial firms in core urban areas is also said to have "funnelled demand into the most supply-constrained submarkets".

Although most office markets "are in growth mode", a supply surge and political instability have weakened rental growth in Beijing and Bangkok. The report said the Thai market served "as a timely reminder of the risks that still exist in emerging Asia".

In the retail sector, job growth, an expanding middle class – notably in China – and foreign direct investment by international chains drove up regional rents in 2006.

The report also predicted Asian retail markets would be "firmly entrenched in their growth sectors" in 2007.

Its authors forecast continued strong shopping centre performance, led by Shanghai although there are likely to be exceptions in Hong Kong, Beijing and Kuala Lumpur, where property supply spikes could well disrupt rental growth.

In contrast, limited supply, continued aggressive exporting strategies and a mild global economic downturn will boost the short- and medium-term outlook for warehousing and logistics.

More specifically, the lack of quality logistics will push rental values up in most cities across the region, suggests RREEF, and with most mature Asian markets shifting from recovery to growth phases, Chinese industrial production has notably driven growth in Shanghai, Beijing and Hong Kong.