Commercial real estate investment in Asia Pacific hit its lowest level since the global financial crisis during the first three months of the year, as measures put in place to stop the spread of the coronavirus pandemic saw dealmaking almost disappear in some of the region’s largest markets.
With the world heading into what some analysts predict will be the worst global recession since the 1930s, real estate data provider Real Capital Analytics said investment volume fell 50 percent to $21.3 billion compared with the same period in 2019.
By comparison, the US and European markets have not yet seen the same loss in trading volume, due to lockdowns in those geographies not beginning until mid-March.
“The US and Europe are expected to see a similar level of decline in the second quarter of the year, with economies that went into lockdown sooner possibly recovering more quickly,” said RCA’s managing director in Singapore, David Green-Morgan.
Hong Kong Deal Volume Falls 85%
In Asia Pacific, Hong Kong was the worst performer during the period, with investment falling by 85 percent compared with the first quarter of 2019 to total just $727 million.
With the health crisis worsening a downturn triggered by last year’s pro-democracy protests, investors withdrew from the Asian financial hub as the pandemic further darkened skies over the city.
Activity has stepped up in the second quarter, with a number of assets changing hands at a discount or close to the original acquisition price.
In one such deal, Hanison Construction Holdings was said just over two weeks ago to be in due diligence on a potential purchase of the Travelodge Central Hollywood Road, after offering Pamfleet HK$930 million for the 148-room property – a 34 percent discount to last year’s asking price.
In another transaction said to be driven by the uncertainty in the market, Goldin Financial sold a residential site on the city’s former airport to an undisclosed buyer for HK$7.04 billion ($910 million) just last week, taking a HK$2.6 billion loss on a site it had acquired in November 2018.
Singapore Investment Down 78%
Following closely behind Hong Kong, Singapore saw real estate investment plunge 78 percent over the same period to reach just $432 million in deals, according to Real Capital Analytics.
Green-Morgan pointed out that the decline in volume comes after a particularly strong year in 2019, which saw institutional investors crowding into the market.
In one of the highest profile mega-deals of 2019, Allianz Real Estate, together with Gaw Capital, which was representing a sovereign wealth fund, acquired the Duo Tower and Duo Galleria in Singapore’s Bugis area for S$1.6 billion, paying the equivalent of S$2,590 per square foot.
Green-Morgan said that Perennial Real Estate’s announcement last week that tech giant Alibaba would acquire a 50 percent stake in the AXA Tower, which valued the office property on Shenton Way at S$1.68 billion, is an encouraging sign that corporates are looking to invest in the city in the current climate.
Mainland China Sees 67% Drop
With mainland China the first to impose restrictions that brought an end to site inspections at the same time that they shuttered shops and schools, the country saw deal volume decline by 67 percent from a year earlier with just $4.7 billion in investment from January through March.
In a quarter dominated by domestic investment activity, mainland China bad asset bank China Cinda Asset Management acquired the 26-storey Shanghai HNA Tower from HNA Group for a reported RMB 3.5 billion, in a deal first reported in January.
In another transaction agreed to during the first month of the year, Shanghai government-controlled investment bank Haitong Securities agreed to buy a trio of office buildings worth a combined RMB 7.5 billion ($1.1 billion) in a Greenland Group project on Shanghai’s Bund.
South Korea Shines
Despite the overall decline across the region, South Korea bucked the trend, recording a 12 percent increase in investment volume during the quarter with investors shaking hands on $4.5 billion in transactions.
The north Asian nation’s deal total received a boost from a wave of large office and logistics transactions, including a KKR-led consortium buying Seoul’s Namsan Square office building for a reported KRW 500 billion.
“Despite a spike in the number of COVID-19 cases in March, South Korea never went into full lockdown, so business activity was disrupted less significantly than in some other parts of Asia Pacific,” said Green-Morgan.
The RCA managing director added that, although Korean institutions are traditionally big sources of cross border real estate capital, the lockdowns elsewhere may have forced these institutions to shop closer to home.