Australia, India See 24% Jump in Q2 Deals as Office Trades Surge: MSCI

Australia and India led Asia Pacific’s nascent commercial property recovery in the second quarter, showing the largest increases in trades of income earning assets among the region’s largest markets.

24 percent year-on-year increases in asset trades in both markets, led by office deals, helped the two countries buck a 17 percent year-on-year slide in deal activity for the overall region, according to data provider MSCI. Those gains compare to double digit deal volume declines in China, Japan, Korea, and Singapore over the same period.

With investment volumes for income-generating properties in Asia Pacific having fallen 7 percent in the first half of the year following a 28 percent contraction in 2023, MSCI sees reductions in asset prices in some of the region’s largest markets as helping to spark activity.

“One key takeaway at the mid-year mark is that price adjustments across the high interest markets in Asia Pacific are finally stimulating demand,” Benjamin Chow, head of Asia real assets research at MSCI said in a release. “Alongside the prospect of interest rate cuts on the horizon, deal activity has bottomed out.”

Aussie Market Revives

Australia registered $6 billion of transactions in the second quarter, tying with Japan as the second most active market in Asia Pacific after China and accounting for 18.5 percent of the $32.4 billion worth of deals logged across the region.

In the first half of 2024 the value of income-generating real estate assets traded in Australia grew 5 percent from a year earlier, putting the country alongside India and Korea as the only major markets in the region to see deal activity increase during the period.

Trades of Aussie office assets contributed to the upswing in deals as sliding valuations drew more core and core plus investors in the second quarter compared to last year, when investors primarily targeted the opportunistic side of the spectrum. Australian office valuations have tumbled some 20 percent from recent peaks, according to MSCI.

“One office market that has clearly picked up at the mid-year mark is Australia,” MSCI said in the report. “With prices having declined substantially from peak values and yields expanding by more than 150 basis points, investors have been tempted back into the sector.”

Office trades during the second quarter include Japanese developer Mitsui Fudosan’s acquisition of a 66 percent stake in the A$2 billion 55 Pitt Street office project in Sydney from ASX-listed Mirvac, which ranked as the second largest single-asset office trade globally during the period, according to MSCI. That deal came just a few months after SGX-listed Keppel REIT announced its acquisition of a half-stake in 255 George Street, a grade A office building near Sydney’s harbourfront, from a Mirvac-managed fund for A$363.8 million.

In June, Mirvac sold the 367 Collins Street office tower in Melbourne to Hong Kong-based PAG for A$340 million, while Canadian alternative investment giant Brookfield offloaded the 240 Queen Street office asset in Brisbane to local property firm Quintessential for A$250 million.

The industrial sector also saw an increase in activity during the period with over $4 billion of deals, including Aussie superannuation manager Rest and US fund manager Barings’ joint acquisition of a 12-asset portfolio from ASX-listed industrial specialist Goodman Group for A$780 million.

Indian Office Deals Surge

In India, offices and business parks were by far the most popular assets among buyers in the second quarter, with transactions in that sector surging 224 percent year-on-year and accounting for some 70 percent of the country’s $1.3 billion in deals during the quarter.

“India’s overall activity in the second quarter was driven primarily by offices, where volumes picked up in markets such as Hyderabad and Chennai after a slow 2023,” MSCI senior associate Lynette Ng told Mingtiandi. “The fact that more fully-stabilised offices have been trading in India as of late could be an indication of the nation’s commercial real estate landscape evolving into the next stage.”

Those trades during the quarter include Brookfield India Real Estate Trust’s purchase of a 50 percent interest in four commercial properties in Delhi and Gurugram from Bharti Enterprises for $720 million, as well as Singapore sovereign giant GIC teaming up with private equity firm Xander Investment Management to acquire the Waverock office campus in Hyderabad from Pimco Prime Real Estate and Indian conglomerate Shapoorji Pallonji for $260 million.

In May, CapitaLand India Trust signed a forward purchase agreement with Indian builder Phoenix Group for a business park in Hyderabad, with the deal for that 2.5 million square foot facility setting up the REIT sponsored by Singapore’s CapitaLand Investment for its 13th business park in the southern India city.

Transactions involving Indian industrial, retail, and hospitality assets registered double digit declines during the quarter, while purchases of institutional-scale rental apartment properties increased 248 percent year-on-year.