China Drives Record $45B in APAC Commercial Real Estate Investment

Commercial real estate investment in Asia Pacific reached $45 billion during the first three months of the year, setting a new first quarter high, according to a new report released by property consultant JLL.

Transactions in China drove the spike, with $17 billion of commercial real estate investments in the country from January to March, more than double the amount for the same period in 2018.

China accounted for close to 40 percent of the region’s overall total of $45 billion, which was 14 percent higher than the $39 billion achieved for the same quarter last year.

Foreign Investment in China Up Nearly 50%

Nearly half of the country’s transactions, in terms of sales volumes, were a result of foreign investments into China, mainly from Singapore, the US or from global private equity firms.

“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,” said Stuart Crow, JLL’s chief executive officer of Asia Pacific Capital Markets.

Sales volumes received a boost from a number of mega-deals, including a $1.6 billion sale and leaseback agreement between Chinese online retailer JD.com and Singapore sovereign wealth fund GIC, as well as Swiss private equity firm Partners Group’s $1.3 billion acquisition of Beijing’s Dinghao Plaza from Taiwanese developer Sino Horizon Holdings.

Shanghai and Shenzhen Among Global Top Ten

While London still topped global figures for cross-border investment in the first quarter of the year, foreign buyers spent $2.6 billion on property in Shanghai, making it the second largest recipient of cross border capital globally.

“Cross-border investors were active particularly in Shanghai as tech, financial and professional services firms continue to chase premium office space,” said Crow.

Shenzhen drew in close to $1 billion in foreign investment, ranking the city 10th globally, and making it the only other Chinese city in the global top ten.

Foreign investors targeted assets in Shenzhen hoping to capitalise on the future growth promised by the development of the Greater Bay Area, according to JLL.

Big Gains in SG and SK

Singapore registered a 71 percent uptick in volumes year-on-year, driven by investment across a range of sectors including industrial, hotel and retail, with the acquisition of a prime mixed-use site in Singapore for $518 million by a pair of Kuok Group companies at the end of March adding to the city-state’s tally of transactions.

JLL expects Singapore commercial real estate sales volumes for 2019 to surpass last year’s, with a number of potential multi-billion dollar deals in the pipeline, including a potential sale and purchase of the DUO Tower office building and the $6.6 billion expansion of Resorts World Sentosa and Marina Bay Sands.

South Korea also saw an upswing, with investment volumes increasing 28 per cent year-on-year, thanks in part to ARA Asset Management’s February acquisition of an office in Seoul for $890 million.

Japan and Hong Kong Slide

Despite Japan registering a decline in year-on-year investment activity, Tokyo was the most active city in the world in terms of transactions for the first quarter of the year, according to the JLL report.

Eighty-three percent of the $6.5 billion in commercial real estate investment activity in the Japanese capital was driven by domestic groups, with Gaw Capital’s $757 million acquisition of the Aoyama Building at the end of March being the only cross-border investment in the city.

In Hong Kong, buyers have been chasing assets located beyond traditional core districts, JLL found, with PAG’s reported $1.5 billion acquisition of Mapletree Bay Point in Kwun Tong from Singapore’s Mapletree Investment being a recent notable deal.

The city slipped from fourth to sixth place in the global rankings of the most active commercial real estate cities in the world with $4.5 billion of transactions, but JLL said investor sentiment in Hong Kong has rebounded in view of the US Federal Reserve’s likely freeze on rate hikes this year.