Real estate investment volumes across Asia Pacific slumped 32 percent in the first half of 2020 compared to last year, falling to $60.4 billion as the full economic impact of the Covid-19 pandemic hit the region, property brokerage JLL said in a report late last week.
As governments around APAC imposed lockdowns and travel restrictions to curb the further spread of coronavirus, investment volumes declined to $26.1 billion in the second quarter from $34.4 billion in the previous three months, it said.
“The sharp decline in deal activity in the second quarter is reflective of the lack of willing sellers and the general uncertainty that exists around market recovery,” said Stuart Crow, CEO for Capital Markets in the Asia Pacific at JLL. “Liquidity remains very high, and we expect transaction activity is poised to rebound in the second half as economies further reopen and pricing expectations are adjusted in certain markets.”
With interest rates declining in most major markets, JLL believes the region’s commercial real estate market will remain attractive to global investors. It estimates institutional investors have approximately $40 billion in dry powder ready to be deployed should opportunities arise, particularly in key Chinese cities such as Shanghai.
China Market Driven By Shanghai Deals
China was the most resilient market in the region during the period, with transaction volumes in the country falling a modest 15 percent in the second quarter compared to the same period last year, JLL said.
Despite the tepid economic environment, there were a number of deals completed in the country in recent months. These include a pair of Shanghai transactions in the past two months such as Hong Kong Shanghai Alliance’s RMB 3.1 billion ($443 million) acquisition of the Great Wall Financial Building and Sino-Ocean Capital’s RMB 2 billion purchase of H88 Yuehong Plaza.
In June, a joint venture between Greenland Group and the Shanghai government agreed to sell one of the commercial towers in its RMB 100 billion ($14 billion) Greenland Bund Centre to Bank of Shanghai, just five months after Haitong Securities purchased three buildings in the mixed-use project.
In the same month, a company controlled by Taiwan-born mainland actress Zhang Ting and her husband bought Tower 2 in Tishman Speyer’s Crystal Plaza project in Pudong.
Iconic Hong Kong Land Sale on the Way
While Hong Kong had the worst performance among commercial property markets across the region, with transaction volumes tumbling 68 percent in the second quarter from the previous year, the city’s government seems unperturbed by softening investor appetites.
In late June, Hong Kong put up for sale an iconic commercial site in the city’s busiest business district despite market uncertainty and sliding property values. The 4.76 hectare (512,362 square foot) waterfront plot, named New Central Harbourfront Site 3, is surrounded by some of the city’s most famous landmarks, including the Hong Kong Observation Wheel and the IFC complex to its west.
“The site is arguably the most significant waterfront site globally at this time in any major city,” said Trevor Vivian, Global Director of international architectural firm Benoy, “It therefore represents Hong Kong’s greatest opportunity to bring something special and globally recognizable to complete the waterfront along Central.”
Although developers are expected to bid with caution, the project is expected to rejuvenate investor interest in Hong Kong’s Central where real estate companies have been selectively snapping up prime sites in the city.
Demand for Prime Hong Kong Sites
Investor confidence in Hong Kong was further in evidence this month when Chuang’s Consortium bought up a redevelopment site on Gage Street in Central district through a compulsory sale.
Earlier this month, New World Development Company Ltd. (HKG 0017) also applied for compulsory sales of two old buildings in the Sai Ying Pun area just west of Central, after securing over 80 percent of the ownership of the properties.
Mainland China investors are back in action too in Hong Kong, with China Resources Beer buying an industrial property in the New Territories.
E-Commerce Boom Boosts Logistics Sector
Industrial properties are among the few bright spots across the region amid surging demand for logistics properties from the booming e-commerce sector. Rental growth in this sector remained strong in Shanghai and Sydney and leasing rates were largely stable in Singapore, Beijing, Sydney and Melbourne, according to JLL.
While the Covid-19 pandemic has upended most industries and dragged the global economy into recession, it’s been a boon for logistics assets, Jeffrey Perlman, chairman of ESR, the largest logistics real estate platform in Asia Pacific told Mingtiandi recently.
“Logistics hasn’t skipped a beat over the past three to four months even in the midst of the pandemic,” Perlman said in a video interview earlier this month with Mingtiandi. “It’s been a busy period. Investors have really looked to prioritize logistics over almost any other property type within real estate given a lot of the resilience that we’ve seen in logistics on the back of e-commerce.”
Warburg Pincus-backed ESR, which has $22.1 billion in assets under management, last week moved to consolidate its presence in Southeast Asia’s highest value market by merging a pair of Singapore industrial real estate investment trusts it manages in a S$397 million ($285 million) deal.
Singapore Deals Shrink
Singapore was among the locations in the region worst hit by the pandemic, with deals in the city-state sliding 65 percent in the second quarter from the previous year, according to JLL. Despite slumping retail sales in the Southeast Asian financial hub, a division of tycoon Charoen Sirivadhanabhakdi’s TCC Group has agreed to purchase a 50 percent stake in a suburban Singapore shopping centre from Frasers Property at a slight premium, the SGX-listed developer controlled by the Thai billionaire.
Some Singaporean investors are also quietly stitching up overseas deals.
OUE Limited, the Singapore-based property developer controlled by Indonesian conglomerate Lippo Group, said Friday that it has agreed to sell the iconic US Bank Tower in Los Angeles. Earlier this month, the investment arm of Singaporean developer Tong Eng Group said it has partnered with Singapore-listed builder Roxy-Pacific Holdings to buy an office building in Melbourne’s central business district.
Elsewhere in the region, Japan registered a modest 20 percent decline in transactions in the second quarter from a year ago, supported by strong domestic liquidity and demand for multifamily assets, JLL said, with transaction records showing that defensive sectors such as residential apartments in major Japanese cities remaining popular among foreign investors seeking reliable investment yields.
Japanese Apartments Heat Up
The real estate investment arm of French insurance giant AXA bought two residential apartments in Nagoya this month alone, bringing the firm’s total investments in Japanese residential assets on behalf of clients to more than ¥36.5 billion ($340 million).
Other international investors have also been snapping up residential properties in Japan this year, which is attracting investors due to the limited supply of apartments in its largest cities. In late May, Allianz Real Estate invested €110 million ($122 million) to acquire an apartment complex in Tokyo and in March Nuveen Real Estate spent $140 million to purchase a portfolio of multifamily assets in Japan from PAG.
In February, Blackstone bought back a portfolio of Japanese rental apartments from China’s troubled Anbang Insurance for a reported JPY 300 billion in what was said to be the largest property deal ever in Japan.
“While there were some relative bright spots in select areas, the market does remain unpredictable and all sides will be watching closely as the second half unfolds,” said Jeremy Sheldon, head of markets in the said Pacific at JLL.