Asia Pacific hits record US$45 billion of real estate investment in Q1 2019

Singapore, 23 May 2019 – Real estate investment in Asia Pacific was up 14 per cent in the first quarter of 2019, setting a new record of US$45 billion in sales volume, according to global real estate consultant JLL’s Global Capital Flows data.

Driven by an inflow of cross-border capital, China accounts for close to 40 per cent of Asia Pacific transaction volumes between January and March 2019. At US$17 billion, that is more than double the amount for the same period in 2018. This comes off the back of a number of mega deals, including the US$1.6 billion sale and leaseback agreement between Chinese online retailer JD.com and Singapore sovereign fund GIC, as well as Swiss private equity firm Partners Group’s US$1.3 billion acquisition of Beijing’s Dinghao Plaza from Sino Horizon Holdings.

Stuart Crow, CEO of Asia Pacific Capital Markets, JLL, explains: “The Chinese government’s focus on deleveraging has impacted the availability of credit for local borrowers and pushed some owners to divest assets in order to reduce debt. Coupled with the move to open its financial markets to foreign investors, these have facilitated greater cross-border flows into China. In fact, foreign investments into the Chinese market accounted for nearly half of its transaction volumes, mostly from Singapore, the U.S. and global private equity firms.”

According to the report, foreign buyers invested US$2.6 billion in Shanghai, making it the second largest recipient of cross border capital globally. Shenzhen, which is ranked 10^th, drew close to US$1 billion in foreign investment.

Mr Crow explains: “Cross-border investors were active particularly in Shanghai as tech, financial and professional services firms continue to chase premium office space. We foresee that financial institutions will further accelerate demand and become a major driving force in Shanghai’s leasing market over the next six to 12 months. Many investors outside of China are also targeting assets in Shenzhen to capitalise on future growth, thanks to development guidelines by the government to develop the Greater Bay Area.”

“Despite ongoing trade tensions with the US, confidence in China’s commercial real estate remains strong. Looking ahead, foreign investor appetite for Chinese assets will continue to rise, as the environment for domestic investors is likely to improve with loosening monetary policies, leading to record high transaction volumes in China this year,” continues Mr Crow.

Among other major Asian markets, South Korea maintained its momentum from last quarter, increasing investment volumes 28 per cent year-on-year. Singapore registered a 71 per cent uptick in volumes year-on-year, driven by investment across a range of sectors including industrial, hotel and retail.

“Fund maturities continue to bring a pipeline of investment opportunities in South Korea’s prime office stock, drawing renewed focus from domestic investors looking back into their home markets. However slowing economic activity and continued compression in yields are making it increasingly competitive to source assets,” says Mr Crow.

“Similarly, investor interest in Singapore remains high, bolstered by the upbeat outlook for its commercial leasing market. We believe that transaction volumes this year should surpass last year’s.”

Mr Crow adds: “Overall, there will be a good pipeline of deals coming into the major markets in Asia Pacific over the next few months. We’re maintaining our forecast of a slight increase in transaction volumes from last year, coming in at around US$170 billion by the end of 2019.”

Elsewhere in the region, usual strong performers like Japan, Australia, and Hong Kong all saw a decline in year-on-year investment activity. Despite the dip in overall volumes, Tokyo remains the most active city in the world in terms of transactions in the first quarter of 2019. Nearly 83 per cent of real estate investment activity was driven by domestic groups, primarily corporates and J-REITs.

Meanwhile, Australia’s slowing domestic economy, declining residential prices and uncertainties surrounding the approaching federal elections, have led to a downturn in transaction volumes across a number of industries, most particularly retail, says JLL.

Given the U.S. Federal Reserve’s likely freeze on rate hikes this year, investor sentiment in Hong Kong has rebounded, with buyers chasing retail assets located beyond traditional core districts. A recent notable deal is PAG’s reported US$1.5 billion acquisition of Mapletree Bay Point in Kwun Tong from Singapore’s Mapletree Investment.

For more information, please download JLL’s Global Capital Flows Q1 2019 report here.

 

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