In the first quarter of 2007 institutional investors continued to show strong interest in the acquisition of logistics facilities, with high levels of investment activity in Japan and China. Demand for industrial property or land remained buoyant in most Asian cities on the back of robust economies and sustained growth in the manufacturing sector.

In Japan, investor interest in distribution facilities continued to grow during the first quarter of 2007, with domestic and international investors both active in the sector. Mitsui Soko and recent entrant Mapletree Logistics Trust were among those making purchases. At the same time, ProLogis and AMB remained among the most prolific developers of large, high-specification logistics facilities. The quarter saw domestic logistics leasing and asset management firm J-REP announce plans to construct five distribution facilities over the next 12 months.

Singapore saw increases in both rents and capital values of industrial property during the first quarter, with further appreciation expected. Developers displayed robust interest in the sector, purchasing four industrial development sites during the quarter at unit prices above those recorded in 2006. Though high-tech space continued to lead the sector, average factory rents rose after remaining unchanged throughout 2006 and the average rent for warehouse space increased for the first time since 2003.

In Hong Kong, demand for industrial space remained strong thanks to robust re-export activities and investors' optimism about the local economy. Landlords saw room for upward price and rental adjustments in all industrial sectors. However, completion of a number of upcoming office developments in East Kowloon will exert downward pressure on rents and prices in the industrial/office (I/O) sector. Investment activity was extremely brisk, with HK$2.5 billion in en bloc and site transactions recorded during the quarter.

Industrial land prices in China appreciated further following the Central Government's introduction of minimum land prices and open market mechanisms for primary sales of industrial land in late 2006. The average price of Shanghai industrial land rose 3.2% q-o-q to RMB 879.4 psm (RMB 81.7 psf), while the average rent of industrial facilities increased 2.5% q-o-q to RMB 38.5 psm (RMB 3.6 psf) per month. Three industrial land parcels in Shanghai were transferred by means of public listing for the first time under the new regime.

The price of industrial land in Guangzhou similarly surged after the implementation of the new policies. The rise in land prices has not dampened industrialists' enthusiasm about the Pearl River Delta, and the industrial market saw brisk investment and leasing activity.

In Beijing, logistics has emerged as the hot spot in industrial property investment, with a number of international logistics property developers and investors including AMB, ProLogis and Mapletree actively seeking suitable investment opportunities. Investors have focused on mature industrial areas, including Shunyi Tianzhu in northwestern Beijing and Tongzhou Majuqiao in the southeastern city.

Chengdu's industrial sector continued its rapid expansion in the first quarter of 2007. The first two months of the year saw 168 enterprises commit to entering Concentrated Manufacturing Industries Planned Areas. In March, PetroChina announced that it would invest RMB 38 billion in an oil refinery and ethylene plant in Pengzhou, Chengdu. The mega-project is expected to stimulate industrial property development throughout the Pengzhou area.

A number of MNCs are expanding their operations in the Philippines, with companies in the manufacturing and IT services sectors being the chief demand drivers. Occupiers in a number of industrial zones are expected to be awarded a number of tax perks following new legislation.

In Vietnam, the value of Ho Chi Minh City's industrial output continued to grow rapidly, registering a 12% q-o-q increase in the first quarter of 2007, although the rate of growth was lower than that recorded in 2006. The quarter saw the announcement of additional large-scale industrial projects, many involving investments by MNCs. On the back of Hanoi's strong export and buoyant economic growth, the majority of the city's major industrial parks remained fully occupied, as demand has persisted in tandem with the growth in foreign investment.

In Thailand, recent events including the implementation of capital control measures and more stringent rules limiting foreign ownership of Thai companies continued to impact on sentiment in the industrial property market, leading to a drop in sales of serviced industrial land plots. However, the signing of a Thai-Japan free trade agreement in April 2007 provided some positive news to the market.