Research - JUNE 5, 2017

Asia Pacific investment activity surpasses expectations in Q1 2017

by Released

After the uncertainty of first quarter 2017, where U.S. President Donald Trump took office and China announced tighter monitoring of its capital outflows, investment activity during the first quarter of 2017 surpassed expectations, according to JLL’s Asia Pacific Market Perspectives Q2 2017 report. Capital continued to seek exposure to real estate given the current pressure on investment returns.

In Asia Pacific, commercial real estate transactions held steady at $25.3 billion during first quarter 2017. Strong performances were led by Singapore, which grew 189 percent year-on-year and Japan, which increased by 16 percent year-on-year. Although China’s quarterly performance was stable, volumes were slightly weaker in Hong Kong and Australia, where transactions went down by 27 percent and 28 percent year-on-year, respectively.

Domestic buyers still dominated but cross-border buyers remained active and accounted for 25 percent of total purchases regionally. International funds such as LaSalle Investment Management, PGIM Real Estate and Blackrock continued to acquire core assets in Japan, Korea and Shanghai. Singapore investors were active; however, Chinese buyers were quieter in the region. Nonetheless, a Chinese developer bought GSH Plaza in Singapore for $512 million, one of the largest deals in the city during the quarter.

Greater China, Japan and Australia accounted for the biggest deals brokered by JLL. These included Mapletree selling the mixed-use Silver Court in Shanghai for $479 million, LaSalle Investment Management buying the Mioka shopping center in Japan for $276 million, as well as the sales of World Trade Centre in Melbourne for $203 million, and the Zung Fu Aberdeen Garage Building in Hong Kong for $201 million.

In the upcoming months, institutional investors will still be looking toward allocating more capital to regional real estate assets. According to ANREV, Asia Pacific was the only region to see an increase of capital raised in 2016, with 80 percent of non-listed funds with an AP strategy raising a total of $22.9 billion. Half of the total capital was allocated to core investment destinations, with China and Australia attracting the most investment.

Market conditions should position Australia, Singapore and India to see stronger momentum in investment activity over the next six to 12 months, while Japan and Greater China will likely remain stable. JLL expects more investment into India as Prime Minister Modi exerts his control over both houses of Parliament, allowing for quicker reform.

Although there is greater investment interest in Southeast Asia, opportunities for development are more common than asset sales. With the weight of capital chasing real estate assets and as the cost of capital for property investors remains favorable, core real estate yields will continue to stay low. Yields in some of the region’s markets might even compress further when compared with their long-term ranges.

JLL suggests that direct commercial real estate investment activity regionally will remain stable throughout 2017.

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