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Commercial real estate investment in Asia Pacific increase

Preliminary figures suggest that volumes have now reached approximately US$67 billion year to date compared to US$61 billion for the same period last year.
The key country to watch was Japan where direct commercial investment volumes went back to over US$4.7 billion in line with the same quarter in 2010, as investors looked to see how the markets recovered following the tsunami and earthquake and the subsequent dramatic fall in volumes during the second quarter.

The resumption of this market is likely to support renewed international investor interest in the biggest market in Asia Pacific. The IMF’s outlook for Japan next year is for growth of 2.3% based on reconstruction work following the disaster, says the report.

In China, Shanghai was a top location with the city being home to six out of the top ten biggest deals, four offices, one retail and a hotel. The deal volume for China’s direct commercial property investments rose to approximately US$ 2.8 billion, up 13% year on year.

The landmark deal this quarter was Hong Kong’s Festival Walk retail deal, which was sold by Swire Properties to Mapletree Investments for US$ 2.4 billion. This is the largest deal by far involving a single built asset since 2007, and the largest in Hong Kong’s history.

In Australia, volumes stood at the US$3 billion mark, back to more usual transactional levels following the surge of overseas cash into the market last quarter which pushed volumes up to US$4 billion.
On the back of increased investment volumes most major markets saw either stable or increasing capital values. Across the region, the average quarterly increase in capital values was 2.6%, slightly higher than the 2.4% recorded in the second quarter.

Capital values in Jakarta and Beijing recorded the largest quarter on quarter increases of 14.2% and 11.8%, respectively, largely in tandem with rental growth. Sydney, Perth and Manila followed with quarterly increases of 4 to 6.5%. Growth in capital values in Hong Kong and Singapore slowed further to between 0.8% and 2.1%, as investors became more cautious.

‘Growing uncertainty on the global economy is placing downward pressure on capital values across some core markets in Asia Pacific. Many investors are shifting their attention to the less volatile office markets such as Australia and Japan, which is likely to continue to benefit from a flight to safety in the next 12 months, with investors attracted to the higher yield environment. There remains a solid interest in China Tier 1 Cities from domestic and international investors alike,’ said Stuart Crow, head of Asia Pacific Capital Markets.

Office leasing demand remained buoyant in across most of Asia Pacific, according to the Office Index also published by Jones Lang LaSalle. Corporates continued to expand in China, while relocations and expansions bolstered demand in other centres. Corporate hiring sentiment and leasing demand weakened in the major financial centres of Hong Kong and Singapore amidst recent market volatility and news of some corporates shelving relocation and expansion plans.

Of the 27 office markets featured in the report, 18 saw an increase in net effective rents, while for the remainder rents stabilised or recorded small residual declines. Aggregate rental growth was largely similar to the previous quarter, with an average quarter on quarter increase across the region of 2.5%, as stronger growth in some Australian cities helped offset weaker growth in Asia.

Rents in Jakarta, Beijing and Perth saw the largest quarter on quarter increases in the third quarter of between 10.5% and 13.6%, as vacancy levels fell rapidly in all markets. Among the major financial centres, net effective rents fell marginally by 0.9% quarter on quarter in Hong Kong Central and moderated to 0.6% quarter on quarter growth in Singapore Raffles Place, largely due to the slower expansion of financial institutions.

‘Leasing demand is still solid in most markets, especially China Tier 1 cities and most of South East Asia. We are seeing a slowing of decision-making in the more financially orientated markets of Hong Kong and Singapore which will translate into slowing rental growth but with more economic certainty this could be short lived,’ said Jeremy Sheldon, managing director of Markets for Asia Pacific.

Gross rents in Tokyo fell further by 0.4% though net effective rents were stable. Rental declines were seen in a few other Asian markets like Seoul, Osaka and Vietnam, due to weak tenant demand or new supply, but are close to bottoming out. Average rents in India generally increased by up to 3% during the quarter.

‘We expect overall leasing demand to remain solid for the remainder of 2011, particularly in the emerging markets. The regional office market continues to favour landlords although occupiers have become more reluctant to pay high rentals. Rental growth of up to 45% is expected across the region for the whole year, with the strongest growth likely to be seen in markets such as Beijing and Jakarta,’ said Jane Murray head of research for Asia Pacific.