China outpaced all Asia Pacific countries in fourth-quarter commercial real estate deals, with asset purchases by state-owned groups propelling a 50 percent year-on-year rise in mainland investment volume to $11.1 billion, according to JLL.
While Asia’s biggest economy led the pack for a second quarter in a row, Japan squeaked into the No.2 spot despite deal volume plunging 53 percent to $4.4 billion amid concerns about the Bank of Japan ending its negative interest rate policy, the consultancy said in its Capital Tracker report. Australia was a close third with $4.3 billion, up 14 percent.
APAC investment overall rose 3 percent year-on-year in the October-December period to $31.6 billion, reversing seven straight quarters of declines, as full-year deal volume across the region fell 17 percent to $106.8 billion.
“While the cost of debt remains elevated, investors across Asia Pacific are still erring on the side of caution,” said Stuart Crow, CEO of APAC capital markets at JLL. “The prospect of interest rate cuts in 2024 may potentially reverse current trends, but we can expect greater sector diversification among investors — particularly towards sectors such as logistics and industrial and living, which have seen high investor conviction across the region.”
In China, state-owned insurance firms emerged as major capital sources making real estate buys in the fourth quarter, the report said.
The biggest single-asset deal tracked by JLL on the mainland was the $587 million acquisition of the COFCO Landmark Plaza in Beijing by China Post Life, an insurance arm of the state-owned postal service. The seller was a joint venture of developer Grandjoy Holdings, Singapore sovereign fund GIC and China Life.
Elsewhere, South Korea’s deal volume during the quarter fell 7 percent to $4.2 billion, moderated by large office transactions backed by strategic investors, blind funds and REITs. The key event was KB Asset Management’s $643 million purchase of the Samsung SDS Tower in Seoul from a local REIT, completing the nation’s largest real estate deal of 2023.
Hong Kong investment rose 6 percent to $2.1 billion, helped by two sizeable owner-occupation office transactions: Li Ning’s acquisition of Harbour East from Henderson Land for $283 million and the Securities and Futures Commission’s purchase of 12 floors at Swire Properties’ One Island East for $691 million.
Dry Powder Drawdown
APAC fundraising for real estate investment totalled $18.8 billion in 2023, down 34 percent, with industrial, multi-family and data centres attracting the most capital, the report said.
Dry powder stood at $68.1 billion in December, a 2 percent drop from a year earlier, driven by a 14 percent decline in dry powder levels for opportunistic strategies.
The reduction in unallocated capital shows investors’ willingness to take a long-term view in light of current market challenges, said Pamela Ambler, head of investor intelligence for Asia Pacific at JLL.
“In 2024, challenges will remain with interest rate movements playing a decisive factor in investment activity and selling pressure mounting in some of the region’s bigger markets,” Ambler said.