Real estate investment in Asia Pacific showed signs of recovery in the third quarter of 2020 as volume shot up 35 percent from the previous three months, supported by the return of institutional investors who had stayed on the sidelines during the COVID-wracked first half.
And while the third-quarter figures were down 19 percent compared to the same period last year, transactional activity sped up across several key markets as investors deployed capital with more confidence than at any other period in the year to date, according to a report from JLL.
The investment rebound was led by North Asia, with China (down 10 percent year-on-year), South Korea (down 2 percent) and Japan (down 18 percent) seeing more transactions as economic activity partly resumed in those markets. But a grimmer picture prevailed elsewhere, as investment activity in Australia (down 45 percent year-on-year) and Hong Kong (down 27 percent) remained subdued.
“The first major signs of a resumption of investment activity emerged in the third quarter, with investment volumes showing meaningful improvement in China, Korea and Japan,” said Stuart Crow, CEO for Asia Pacific capital markets at JLL. “While uncertainty will remain for the foreseeable future, we believe that low transactional activity has bottomed out, and our optimism for the fourth quarter continues to grow.”
Logistics, Data Centres Carry the Load
As public-facing sectors continued to reel from COVID-19 fallout in the third quarter, the industrial market performed strongly: transactions in the sector surged 76 percent year-on-year, driven by logistics and data centre deals. Such assets accounted for 70 percent of transactions in Japan and 31 percent in China. At the same time, Asia Pacific office transactions were down 35 percent year-on-year, while retail and hotel transactions fell 51 percent and 87 percent respectively.
The fledgling recovery was bolstered by the reawakening of institutional investment after a pandemic-induced pause in the first half. Investment managers made up 10 percent of bids submitted for asset sales managed by JLL in Asia Pacific during the third quarter, up from 4 percent in the second. Private investment, meanwhile, narrowed to 25 percent of submitted bids from 37 percent.
The continued compression in cost of capital spurred activity in the period by providing a boost to acquisition power. Financing costs in the region are down by 50 to 100 basis points in the year to date.
“Investors returned in greater numbers in the third quarter, reaffirming their appetite for North Asia assets and real estate linked to logistics and data centres,” said Regina Lim, JLL’s head of capital markets research for Asia Pacific. “We’re confident that the fourth quarter will present a broader range of opportunities across the region, particularly in classes like multifamily and rebounding markets like Singapore.”
City-State Safe Haven
In addition to secure-and-stable Tokyo and Seoul, which JLL analysts tabbed as the top two cities globally for investment in the year to date, Singapore also stands out as a safe haven for corporate activity. The one-two punch of the government cutting sales of commercial sites and a wave of Chinese tech firms setting up Southeast Asia beachheads is expected to boost Singapore office rents by 30 percent from 2022 through 2024, as leasing rates are expected to decline by up to 7 percent in 2021, JLL said.
The property broker also sees growth in Japanese multifamily residential, fuelled by domestic migration to Tokyo, and in Shanghai and Seoul logistics, driven by e-commerce expansion.