Despite heightened risk concerns from potential interest rate hikes in developed economies, credit rating downgrades in Greece and other euro-zone countries, conflicts in the Middle East and Africa, and the economic impacts of natural disasters in the Pacific, we remain confident of the economic outlook in the Asia-Pacific markets, which are characterised by recovered employment markets and household income, as well as growing intra-regional and international trade.

China and India will remain the drivers of economic growth, with real GDPs expected to expand by 9.4% and 8.2%, respectively, in 2011, according to Deutsche Bank economists, compared with 5.4% for Asia excluding Japan, China and India. Meanwhile, the Japanese economy is forecast to grow by 1.6% in 2011.

While the Asian real estate investment landscape has changed significantly since the financial crisis, characterised by a growing and more diverse investor base, changing regulatory environments and maturing capital markets, it still presents investors with abundant investment opportunities. Of the many investment opportunities we expect to see in Asia-Pacific in 2011, Australia, China and Japan are the standouts.

The Australian market has strong economic fundamentals with resilient GDP growth. A low unemployment rate of 5% is driving strong office market demand, and a stable increase in household income continues to strengthen retail sales. The burgeoning demand for commodities from China and other developing countries also supports industrial real estate markets such as Perth and Brisbane. Real estate investors in Australia enjoy relatively stable income streams and room to weather market volatility as leases are usually long with annual rental escalation provisions. The constrained office market supply, driven by limited development financing during the global financial crisis, coupled with increased office demand is supporting strong rental growth forecasts. Pricing, however, has become more competitive as recapitalised AREITs and re-balanced super-funds are re-entering the market, and the relative strength of Australia's economy might deter foreign investors.

China offers real estate investors attractive medium- to long-term opportunities. Double-digit nominal annual income growth and rapid urbanisation underpin demand for residential properties, including better-quality housing. We estimate the minimum annual urban residential demand to be 750m m2, or 8.3m houses. The office market is also evolving as the influx of international companies and the rise of domestic enterprises have led to demand for international grade offices, initially in the national economic centres of Beijing and Shanghai and more recently in regional economic hubs such as Guangzhou, Shenzhen, Wuhan, Hangzhou, Chongqing, Chengdu, Tianjin and Shenyang.

The rise of income and the government's promotion of domestic consumption have fuelled demand for quality retail space in both the mass and luxury retail markets. Rapid regulatory changes continue to increase the domestic real estate investor base and drive the institutionalisation of domestic real estate. However, investors should base investments on medium- to long-term fundamentals as regulatory risk remains a challenge, especially in the residential sector.

While we continue to believe in the attractive fundamentals of the Japanese real estate market and the opportunities from an improving economic outlook, the recent earthquake and subsequent events have cast a significant element of uncertainty over both the timing and nature of the recovery. In 2010, Japan real GDP quickly recovered from a sharp fall and rebounded by 4%. RREEF forecasts the office market to benefit from an improving labour market where the seasonally-adjusted job-to-applicant ratio, on a national basis, has been recovering from a low of 0.43 in July 2009 to 0.61 in January 2011.

Meanwhile the office vacancy rate in Tokyo's three CBD wards (3-kus) peaked in the second quarter of 2010. The net absorption has since turned positive and rental and capital values for top-tier properties have turned north. We expect the recovery to gradually diffuse into lower-grade office markets, which make up the bulk of the investible and accessible property, as well as into regional office centres such as Osaka and Nagoya. We also expect the office market to benefit from the Bank of Japan's JPY50bn (€400m) plan to purchase JREIT units from the open market, thereby improving market sentiment and lending support to potential acquisitions by JREITs.

Asia-Pacific has reshaped itself from mainly an investment destination for international capital to both a capital importer and capital exporter in the real estate market. Further institutionalisation of Asian real estate will help improve liquidity, pricing and transparency. Short-term regulatory, inflation and interest rate risks persist, however, so investors should maintain a medium-term to long-term view of opportunities.

Niel Thassim, head of RREEF, Asia Pacific