Japan Outperforms as APAC Delivers Weakest Q4 for Dealmaking Since 2012: MSCI

Commercial property investment in Asia Pacific totalled $32.6 billion in the fourth quarter of 2022, plunging 52 percent year-on-year, as interest rate hikes and uncertainty about the pricing outlook took a toll, according to MSCI Real Assets.

The investment figure marked the weakest fourth quarter for dealmaking since 2012, the data provider said in its Capital Trends report released this week. Deal activity for the whole of 2022 reached $171.2 billion, down 24 percent from the previous year.

Among the key regional markets, Japan was a relative outperformer with its 23 percent decline to $9.3 billion in fourth-quarter deal volume. That showing was padded by the $3.2 billion sale of Tokyo’s Otemachi Place East Tower in the world’s biggest single-asset deal of 2022.

“The fourth quarter presented yet another wave of interest rate hikes, which cooled dealmaking momentum even further both in Asia Pacific as well as across the rest of the globe,” said Benjamin Chow, head of Asia real assets research at MSCI.

Pillars of Stability

Regional leaders China and Japan have benefited from a relatively stable interest rate environment, Chow said. China’s fourth-quarter deal volume fell 52 percent year-on-year to $9.6 billion, edging out Japan for the highest in APAC during the period.

China and Japan were home to the region’s top eight deals in the fourth quarter, including four of only five single-asset deals globally to cross the $1 billion mark.

Some of the largest were insurance giant AIA’s purchase of a 90 percent stake in the SIIC Center, an office-retail complex in Shanghai’s Hongkou district, for $1.1 billion, as well as a CapitaLand Investment fund’s $1.08 billion acquisition of Tishman Speyer’s The Springs Phase 1 in the megacity’s Yangpu district.

The Otemachi Place transaction saw Tosei Asset Advisors and Hulic scoop up the Tokyo office tower from Japan’s Finance Ministry in a deal reported at around JPY 400 billion in November but ultimately closing at JPY 436 billion, according to MSCI Real Assets.

Singapore was once again a standout market in 2022, with deal volume climbing 20 percent to reach $10.8 billion for the full year, though trading fell off with a 41 percent year-on-year dive to $1.7 billion in the fourth quarter.

“While larger deals have stalled or collapsed altogether, investment activity continues to abound in the strata office and shophouse markets,” said David Green-Morgan, global head of real assets research at MSCI. “In particular, the shophouse market posted a record year of over $650 million in investment. This made Singapore the only major market across Asia Pacific where smaller deals of under $100 million actually grew from 2021.”

Malaise All Around

APAC’s third and fourth most active markets in the fourth quarter, Australia and South Korea, registered respective year-on-year drops of 67 and 61 percent to $5.2 billion and $3.6 billion in the three-month period.

Hong Kong, meanwhile, saw investment tumble 66 percent to just $1 billion — on a par with Taiwan’s quarterly reading — as trading of offices languished.

“Hong Kong’s traditional commercial sectors continued to contract in 2022, but there were some positives from the hotel and multifamily sectors,” Chow said. “Hotel investment volumes had posted strong year-on-year gains, driven by deals of assets intended for repositioning.”

He cited Wang On and Angelo Gordon’s year-end purchase of the Pentahotel Hong Kong for HK$2 billion ($260 million) as noteworthy, it being the first hotel deal in more than two years not intended for redevelopment.