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August 6, 2013

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Commercial real estate deals on rise in Asia Pacific

By Cherry Cao | August 6, 2013, Tuesday | Print Edition

Direct commercial real estate investment in Asia Pacific beat market expectations by rising 21 percent to US$59.7 billion in the first half of this year, major international real estate services provider Jones Lang LaSalle said.

Transaction volumes in the region jumped 21 percent quarter-on-quarter to US$32.6 billion during the April-June period, driven predominantly by the region’s largest markets with Japan, Australia and China all experiencing a strong flow of deals throughout the quarter, the firm’s latest capital market research concluded.

“We are seeing increased allocations to direct real estate by large global sovereign and pension fund investors,” said Stuart Crow, head of Asia Pacific capital markets at Jones Lang LaSalle. “Large US, Canadian and Middle Eastern investors have returned to the region and, together with active Asian high net worth individuals and pension funds, are creating strong demand for assets across the region.”

In Japan, investor confidence has been boosted by improving macro-economic indicators following government stimulatory measures. Acquisitions have been dominated by J-REITs (Japanese real estate investment trust), where inclusion in the Bank of Japan’s asset purchase program has supported improved unit prices over the first half of the year. This, coupled with increased IPO activity, has boosted transaction volume growth to US$10.2 billion in the second quarter, a rise of 78 percent year on year. In the first six months, volumes hit US$20.8 billion, 50 percent over the first half of 2012.

In Australia, continued demand from both offshore and domestic institutional investors and pension funds lifted transaction volumes to US$7.3 billion during the April-June period and US$10.5 billion in the first half, an annual rise of 27 percent. Transaction growth in local currency terms was even higher as the Australian dollar depreciated against the US dollar by 13 percent from the 2013 high.

“Capital from around the region continues to show a bias toward core assets. However, we are seeing some evidence of a shift towards more opportunistic investment,” said Megan Walters, head of research for Asia Pacific capital markets at Jones Lang LaSalle. “At the same time, government policy continues to have both positive and negative effects on deal flow, with stimulatory and cooling measures introduced this year.”

Investment activity in other Asia Pacific markets was mixed as government cooling measures in Singapore and Hong Kong took effect. While quarter on quarter volumes were down in a number of markets across the region, overall growth over the half year was positive compared to the first half of 2012, maintaining a positive outlook for the remainder of 2013.

China’s mainland bounced back strongly from a slower first quarter, with the second quarter seeing a rise of 65 percent from the previous three-month period to US$6 billion. Investment activity surged 97 percent from the second half of 2012 to US$9.6 billion in the first six months of 2013, matching the first half of 2012. Foreign investors, including inter-regional buyers, continued to develop their China strategies with a number of large deals completed during the quarter serving to push cross-border transaction volumes in the first half up 29 percent from same period a year earlier.

Hong Kong’s restrictive cooling measures, specifically the doubling of stamp duty on commercial transactions, have started to impact deals. Transaction volumes were down 53 percent quarter on quarter and 49 percent year on year. The number of cross-border deals dived 71 percent in the first half of 2013 compared to the same period a year ago. Existing activity is being supported by firms looking to occupy space with healthy investor interest for new developments in emerging office locations.

Singapore saw investment activity grow 11 percent in the first quarter of 2013 to US$2.3 billion. While investor interest remains healthy, differing market outlooks between buyers and vendors have led to some disparity in price expectations.

 

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