China Real Estate Investment Down 18% as APAC Market Slows

Following a record year in 2013, transaction volumes in Asia Pacific’s commercial real estate markets slid 15 percent year-on-year during the first quarter of 2014, with the value of investment deals in China dropping 18 percent, according to a recent market report.

Among the bright spots on the investment scene, Japan saw a number of large investment transactions during the period, and the Australian market surged by 31 percent during the period.

The research findings by real estate consultancy JLL attribute the investment slowdown in China to government cooling measures and seasonable variables, and the agency continues to forecast that full year transaction volumes will surpass those in 2013 as a result of the continued allocation of capital to the real estate sector and improving leasing demand.

Dr Megan Walters, head of Research for Asia Pacific capital markets at JLL explained the 2014 market slowdown as a result of international changes in monetary policy and financial conditions.

“During the first quarter of 2014, we saw QE tapering start, and the subsequent cuts to the program coupled with a small increase in interest rates in core markets, has forced investors to focus more on their capital management strategies and reconsider their return requirement.”

The report highlighted renewed investor interest in Japan’s commercial real estate market, noting that the country accounted for US$12.2 billion of direct investment into the region’s commercial real estate markets in the first quarter of the year, representing 53 percent of total investment into the region. What is traditionally a strong quarter for Japan’s investment markets was buoyed further by the increase in the country’s consumption tax on 1st April, which meant many investors deliberately brought deals forward.

Foreign Investors Rediscover Japan

The report found that portfolio transactions and foreign investors helped Japan outperform the region during the first quarter, with a number of large mega-deals boosting overall volumes. Although the higher consumption tax could slow investor appetite in the near-term, the agency predicts that commercial real estate investment growth in Japan that transaction volumes will continue to grow through the end of the year.

Australia Market Jumps by 31 Percent

JLL described Australia’s 31 percent year-on-year growth in transaction volume as being in line with expectations with foreign investors accounting for 32 percent of all deals. While investment during the quarter reached a substantial US$4.2 billion, volumes were down 34 percent from a Q4 2014, and the consultancy predicts that overall investment activity in 2014 will be unlikely to match that of 2013.

China Market Slides to US$3Bil in Deals

Direct investment in China’s commercial real estate markets slowed slightly in the first quarter, down 18 percent year-on-year to US$3.0 billion, which the report attributed at least in part to tightening in the credit markets. JLL predicts that transaction activity in China’s commercial property market will likely accelerate as the year goes on and private investment funds chase assets.

Investors Desert Hong Kong and Singapore

While China’s market caught a winter cold, Hong Kong’s commercial property sector seems to have come down with pneumonia in the first quarter with investment volumes falling 69 percent year on year to only $1.0 billion during the period.

In Singapore, results were similarly chilly with transaction volumes falling off by 42 percent to US$1.2 billion according to the report.

Commenting on the regional drop in investment deals, Stuart Crow, head of Asia Pacific capital markets at JLL said, “Transaction volumes in Asia Pacific are traditionally lower in the first quarter than the rest of the year as the region experiences the effects of both the Western and Chinese New Year holidays.” (The senior property executive did not comment on whether the Western and Chinese New Year holidays had also occurred during the first quarter of 2013).