Asia Pacific commercial property investment poised to rebound after diving 50% in Q1: RCA

The COVID-19 pandemic and the resulting economic shock has slammed Asia Pacific commercial real estate investment, with volumes down 50% year-on-year to US$21.3bn in Q1 2020, according to Real Capital Analytics.

There were no real estate investment deals greater than $1.0bn in Asia Pacific during the first quarter, while there were 11 such deals completed in Europe and the US.

RCA said many transactions under contract, which were expected to be completed in the first quarter, had been delayed.

The delays were leading to a bulging pipeline of pending deals, which were US$8bn over average levels for the past two years.

Smaller transactions showed only limited signs of slowing down, particularly in markets that either controlled the spread of the virus in the quarter, such as China and South Korea, or mostly kept a lid on transmission in the first place, like Taiwan.

South Korea led the region in transaction activity in Q1, with investment volumes up 12% YOY to US$4.5bn.

“So far there have only been few indications of deals being terminated, suggesting that investors are adopting a wait-and-see approach rather than entering panic mode,” said David Green-Morgan, RCA’s managing director of analytics for Asia Pacific.

“The wave of the pandemic is further along in Asia Pacific than other regions and most signs suggest that APAC may already be at, or near, the bottom of the investment slump.

“China already started to relax restrictions on its population as early as March and if other countries are able to follow suit, without unleashing a second major outbreak, the economic downturn may be shorter. All eyes are on the few economies within the region that appear to have the virus under control, which may give us the clearest view of the road ahead.”

Unsurprisingly, the industrial real estate sector was the most insulated from the downturn, with industrial property investment volumes in Asia Pacific down just 10% YOY for Q1 2020.

RCA said investors had already been retreating from office and retail properties over the past 12 months, with COVID-19 exacerbating the slide.

This analysis comes from RCA’s latest quarterly Asia Pacific Capital Trends report. Continue reading to see previous quarterly updates.

Asia Pacific commercial property deals slide 8% in 2019

Published February 18, 2019

Asia-Pacific commercial real estate investment dipped 8% to US$158.5bn in 2019, driven by a lack of entity-scale deals and the slump in Hong Kong.

According to Real Capital Analytics (RCA), commercial real estate investment volumes slid in the fourth quarter of 2019 in one of the largest year-on-year declines in more than three years.

“The growing attractiveness of Asia Pacific real estate as an investment asset class and the depth of liquidity now available in the large city markets as safe havens for capital, meant transaction volumes in the region displayed incredible resilience last year,” said David Green-Morgan, managing director for Asia Pacific at RCA.

“They mostly held-up in the face of the US-China trade war, the Japan-South Korea trade dispute and the battering Hong Kong investments received from the political unrest.”

RCA noted that the investor pullback was limited to specific areas of weakness like Hong Kong, with the largest country markets remaining relatively unscathed by the economic headwinds.

Total cross-border investments in Asia Pacific reached US$57bn in 2019 for a second consecutive record year.

Over the past decade, North American and regional super investors such as Blackstone and GIC have played an important role in the increased regional cross-border capital flows in Asia Pacific.

In the past two years, European players have made a big showing in the region, with Germany’s Allianz Real Estate becoming the second largest cross-border investor in APAC last year.

At an asset level, traditional categories like the office, retail and industrial sectors posted YOY investment volume declines last year, while investment volumes in alternatives like hotels, apartments and senior housing surged.

The hotel sector marked its second record-breaking year in a row, as sales of individual hotels soared by 50%. Total hotel investments reached US$15.8bn in 2019.

“Hotel investment volumes were well above the long-term average in 2019, with investors starting to venture further afield into Southeast Asian markets such as Vietnam and Myanmar,” said Green-Morgan.

“Tourism is growing everywhere across the region, not just in new locations but also more established markets. Japan benefitted last year from the Rugby World Cup in Tokyo and in 2020 it is hosting the Summer Olympics so that, combined with very high room rates, makes it attractive from an investment perspective.

“The hotel sector used to be quite small in APAC, but it has now raced ahead of the other alternative real estate asset classes and is almost on a par with the industrial sector in terms of market size.”

This analysis comes from RCA’s latest quarterly Asia Pacific Capital Trends report. Continue reading to see previous quarterly updates.

Hong Kong property investment dives in Q3 as Asia Pacific markets moderate

Published November 20, 2019

The Hong Kong protests hit the financial hub’s commercial real estate investment during the third quarter of 2019, with transaction volumes falling 32% year-on-year to US$2.7bn, according to Real Capital Analytics.

Hong Kong deal volumes have also dropped 41% YOY to $13.9bn for the first nine months of the year, yet the city remained one of the Asia Pacific’s most active markets.

“Hong Kong transaction volumes dwindled significantly during Q3, largely due to reduced activity by domestic investors after the political protests erupted in June,” said David Green-Morgan, RCA’s Managing Director for Asia Pacific.

“The demonstrations only exacerbated a softening trend though following an exceptionally strong 2018.”

Asia Pacific CRE investment volumes Q3 2019 (source: RCA)

While Australia attracted the most CRE investment in Asia Pacific during Q3, Singapore emerged as a star performer.

Singapore CRE investment climbed 62% YOY to $2.6bn in Q3, and was up 69% to $7.5bn for the year to date.

Total Asia Pacific commercial real estate deals were down 9% YOY in the third quarter at $30.8bn, as the market faces ongoing trade tensions and slowing economic conditions globally.

Most of the region’s leading markets, including China, Japan and South Korea, recorded declines in transaction volumes over the first three quarters of 2019, while the Australian market was flat.

Australia CRE investment dropped 12% YOY to $6bn in Q3, however the market has held steady with a 1% increase to $18.5bn for the year to date.

“Australia performed relatively well in Q3,” noted Green-Morgan. “It saw large and smaller deals, and the flow of international capital remains strong.”

The Australian market has benefited from renewed confidence following the 2019 federal election and numerous recent interest rate cuts.

Australian property investment surges in Q2 2019 as China, Japan slump

Published August 25, 2019

Australia topped the Asia Pacific commercial real estate investment rankings in the second quarter of 2019, as China and Japan property investment volumes fell to the lowest levels in a decade.

Australian commercial property investment reached US$8.4bn in Q2 2019, up 13% compared to the same period in the previous year, according to Real Capital Analytics.

The firm said the Australian market had been bolstered by renewed investor confidence in the wake of the national election and foreign capital flows.

During the same quarter, Japanese commercial property investment levels fell 18% year-on-year to $5.3bn while Chinese real estate capital flows plummetted 39% to $3.2bn.

“Australia’s leading second-quarter performance clearly stands out among the top five biggest Asia Pacific real estate investment markets, as there was a sharp uptick in the consolidation of property ownership over the period and a handful of large domestic deals,” said David Green-Morgan, managing director for Asia Pacific at RCA.

“But the generally dismal picture elsewhere, with the notable exception of Singapore, is less gloomy than it may at first appear because it is being compared with last year’s record-breaking deal volumes in key markets.”

Total Asia Pacific property investment transactions were down 19% YOY to $34.4bn in Q2 2019, with the US-China trade war and global economic slowdown weighing on confidence.

However, RCA noted there may be a bounce-back later this year, having already recorded $10bn in completed deals for Q3 2019 and a further $20bn worth of deals pending.

Investors appear to be betting on safe havens with transparent and liquid real estate markets rather than regional or smaller cities amid the current geopolitical and economic uncertainty.

RCA found that 69% of all capital deployed across Asia Pacific during the second quarter was allocated to the eight largest markets – the highest proportion since 2011.

Beijing takes Asia Pacific CRE crown in 1Q19 amid regional slump

Published May 22, 2019

Beijing jumped to the top position among Asia Pacific metropolitan commercial real estate investment markets for the first time ever, with investments totalling US$4.5bn during the first quarter of 2019.

The Chinese capital leapfrogged to the pole position from seventh place in 2018, thanks to two mega deals worth more US$1.3bn, according to data provider Real Capital Analytics.

“Traditionally, Beijing was considered a government city, more than a major commercial real estate investment target,” said Petra Blazkova, senior director of analytics for Asia Pacific at RCA.

“Cross-border capital flows, however, appear to be changing the nature of the market and the city is becoming more appealing to institutional investors.”

Most Active Metros in Asia Pacific in 1Q19 (image: RCA)
Most Active Metros in Asia Pacific in 1Q19 (image: RCA)

It was a different story for the region though, as Asia Pacific commercial real estate investment slumped 36% to US$30.5bn in 1Q19, compared to the same period the previous year.

The firm said China’s economic slowdown, its trade tensions with the U.S. and the global downturn in demand for consumer products took their toll on property investment across the region.

Blazkova said the markets were comparatively late in the real estate investment cycle and prices looked high from a historical perspective.

“Global interest rates, however, remain relatively low and the count of pending deals is substantial in markets such as Hong Kong, China and India,” she said.

“On balance, these factors signal that the outlook for Asia Pacific’s investment markets for the remainder of the year may be more upbeat.”

In Australia, real estate investment volumes dropped 27% year-on-year to US$3bn, led by a pull-back in cross-border capital flows.

Falling home values in recent years have hurt the country’s housing market, while rising e-commerce is taking its toll on retail, especially discount department stores.

“While the office yield compression in Sydney and Melbourne stopped at or near record lows, more pressure on yields was obvious elsewhere,” the senior director of analytics said.

“The structural changes ahead of the Australian retail sector have started to impact its pricing. Shopping centre yields have moved out by 70 basis points in the last 12 months.”

The slow first quarter result follows a bumper year for the region in 2018, when commercial real estate investments totalled US$159.1bn in Asia Pacific, the second highest on record.

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