Asia Pacific commercial property market heading for strongest year on record
This year is set to become strongest year on record for Asia Pacific commercial real estate markets as transaction volumes continue to surge, the latest investment report shows.
Data from Jones Lang LaSalle show investment volumes in the region are up 33% year on year to US$30 billion and the international real estate firm has increased its forecast for the remainder of the year as a result.
‘The Asia Pacific commercial property markets continue to outperform on the back of unrelenting demand for exposure to direct real estate returns in the region. We are seeing increased activity from Asian Pension and Sovereign Funds, together with new sources of global capital that are allocating to Asian Real Estate for the first time,’ said Stuart Crow, head of Asia Pacific capital markets at Jones Lang LaSalle.
‘Following yet another quarter where growth has exceeded expectations, we have revised our year-end forecast from US$110 to US$120 billion. If this figure is reached, it will put 2013 on a par with 2007 as the strongest year ever by transaction volumes,’ he added.
The growth in the region was predominantly led by the larger markets of Japan, China and Australia which, together, account for 69% of the year’s completed transactions in Asia Pacific.
In Japan, third quarter volumes reached US$8.7 billion, up 139% on the same quarter last year. Year to date transaction volumes now total US$29.5 billion, up 69% year on year as sentiment amongst both domestic and offshore investors continues to improve.
Investment activity in China also grew significantly over the quarter, up 167% year on year to reach US$7 billion. Year to date volumes grew 34% to US$16.6 billion as interest from offshore investors remains strong, accounting for over half the value of quarterly transaction volumes. Despite concerns over credit expansion, there are early indications of more stable conditions in the country’s ‘real economy’, the report points out.
‘Although transaction volumes have surged over the first three quarters of this year, as predicted, we are starting to experience caution over interest rates after the Federal Reserve’s recent announcement to slow its asset purchase programme,’ said Megan Walters, head of Research for Asia Pacific capital markets at Jones Lang LaSalle.
‘Longer dated bond yields across the region have moved higher, highlighting concerns around the direction of global rates and prompting investors to underwrite interest rate rises in their acquisition due diligence. Nonetheless, given the robust pipeline and continued strength of investor sentiment, we remain positive on the outlook for the remainder of the year,’ she explained.
The firm said that investment into Singapore’s commercial real estate market grew by a surprising 106% from the second quarter of 2013 with US$4.2 billion traded over the quarter. Although investment activity in Australia slowed from the strong second quarter, it still grew 17% year on year and 25% on a year to date basis to US$4.9 billion.
Offshore groups remain active, accounting for over 50% of deal volumes this quarter, including recent interest from private groups entering the market. The contrasting domestic interest rate cycle is also offsetting some of the heightened interest rate risk seen in other markets.
Transaction volumes in Hong Kong were down 76% year on year to US$700 million as the cooling measures imposed earlier this year coupled with current market pricing and interest rate concerns push investors offshore. In the third quarter, close to US$2 billion of Hong Kong based capital was deployed to other markets around the region.
Transaction volumes in India totalled US$770 million in the third quarter of 2013, driven by a handful of acquisitions by corporate owner occupiers. The report says that while the challenging conditions in India’s investment markets are expected to continue over the short term, attractive prices and entry yields are proving a draw for private equity investors. Development projects continue to source funding, even in the difficult lending environment, although investors continue to favour development projects in more advanced stages, in order to mitigate risk.
While there was no major investment deals recorded in Indonesia over the quarter, the market continues to deliver strong rental growth. The depreciation of the rupiah, some 18% year to date, coupled with recent economic volatility has contributed to a widening of the country’s deficit prompting the government to deploy foreign reserves in a bid to stem further currency depreciation.