Asia Real Estate Investment Reached US$126.7B in 2013 Says JLL

Data just released by Jones Lang LaSalle (JLL) shows that 2013 was the strongest year on record for commercial real estate markets in Asia Pacific, with direct investment reaching US$126.7 billion by year-end. Transaction volumes over the year were up 29 percent on 2012, surpassing the previous record of US$120.5 billion in 2007.

Stuart Crow, head of Asia Pacific capital markets at Jones Lang LaSalle said, “2013 proved to be an outstanding year for Asia Pacific commercial property markets, exceeding our revised expectations of US$ 120 billion. Unrelenting demand has prevailed in spite of macro concerns around China’s growth outlook, stability in the EU, and the US government’s fiscal strategy. As the market gains further clarity on these issues, we expect a more stable growth outlook which should lead to activity in 2014 surpassing that of 2013.”

The year’s record-breaking growth was driven by the region’s core markets of Japan, China, Australia and Singapore as investor sentiment was lifted by on-going improvements in both debt and equity markets. Throughout the year, commercial real estate markets experienced increased liquidity coupled with greater allocation from multi-asset managers, causing transaction volumes in every quarter to record an improvement on their corresponding period in 2012.

The resurgent Japanese market was a major contributor to the growth in 2013, up 67 percent y-o-y, re-establishing its position as the third most active market globally after the US and UK. Record levels of investment were also reached in China, Australia and Singapore, up 66 percent, 30 percent y-o-y and 40% y-o-y respectively.

Dr Megan Walters, head of Research for Asia Pacific capital markets at Jones Lang LaSalle commented, “In 2013, we continued to see a mismatch between supply and demand across a number of markets in the region. As a result, investors moved up the risk curve in search of higher yields and to mitigate against potential pressures from global fiscal policy. While we did experience caution in the markets following the reduction of the US Federal asset purchases, interest rates across the region proved less reactive when compared to the response following the announcement earlier in the year. Given the strength of investor sentiment and on-going demand, we expect markets to perform as well, if not better, than 2013 for the remainder of 2014.”

China and Japan Stand Out

Japan continues to create headlines around the region, with transactions volumes reaching US$ 12.2 billion in Q4 2013, bringing the full year total to US$ 41.7 billion, up 69 percent on 2012. In local currency terms, the growth is even more remarkable with yen volumes doubling that of 2012. Portfolio deals accounted for the majority of transactions in the final quarter with retail assets comprising 46 percent of deals. Despite competition from a liquid domestic market, interest from foreign investors remains high, although foreign group still accounted for more disposals than acquisitions through the year. With the market performing well, renewed confidence and improving liquidity, 2014 could see a number of legacy assets come to the market as landlords take advantage of the improved conditions.

Increasing demand from both foreign and domestic investors led to strong growth in the Australian market with transaction volumes reaching US$ 6.4 billion in Q4 2013, up 62 percent on Q4 2012 while full year volumes set a new record at US$ 21.9 billion, up 33 percent on 2012. Development activity and the subsequent fund-through deal flow has been a major contributor to investment volume growth in 2013. Foreign listed REITs have also become more active in the market towards the latter part of the year with a number of deals executed during the final quarter.

Investment activity in China also set new records on both a quarterly and yearly basis with transaction volumes reaching US$ 8.5 billion in Q4 2013 and US$ 25.1 billion by year end, up 71 percent on 2012. With a number of large properties trading in the final quarter, office assets accounted for the majority (80 percent) of deal flow. As China’s structural investment growth continues, it confirms its place as the regions second largest market by transaction volumes.

Despite subdued commentary from Singapore over the year, investment activity has lifted, registering US$ 3.3 billion in the final quarter of 2013 and setting another record full year figure of US$ 11.8 billion, up 40 percent on 2012. Despite this, volumes in the middle and lower segments of the market were suppressed with overall volumes supported by a few very large deals and REIT IPOs.

Indonesia was a standout performer in 2013, recording the highest rent growth in the region. This has generated significant interest from both domestic and foreign investors, however accessing product remains challenging. Transactions on stabilised assets are rare and investors are looking at development, fund-through and joint venture structures in order to gain exposure to the market.

Investment conditions in Hong Kong eased with year-end volumes down 35 percent on 2012 to US$ 7.3 billion. With much of the institutional activity from Hong Kong groups currently focused on cross border markets, the bulk of domestic activity has come from end-users and local/PRC developers.”