APAC Real Estate Investment Reaches Record $86B in First Half of 2019

Real estate transaction volumes in Asia Pacific hit a historic high of $86 billion in the first half of 2019, an increase of six percent year on year, despite property investment dropping by nineteen percent globally, according to a recent report by property consultancy JLL.

“Due to the tightening of yields in core markets across the globe, particularly in Europe and the US, investors are made to look beyond their domestic markets in search of higher returns,” said Stuart Crow, JLL’s chief executive officer of Capital Markets Asia Pacific, adding that joint venture and consortium structures continue to increase in popularity for large deals across the region as investors seek a more direct approach and see the benefit in partnering long-term with like-minded groups.

While Asia Pacific bucked the global trend, analysts from Cushman & Wakefield found that despite capital investment in Greater China managing a 3.3 percent in increase in the first half of the year, transaction value slipped by 19 percent in the second quarter, compared to the same period last year.

Capital Investment in Singapore Nearly Doubles

Real estate transaction levels in Asia Pacific were given a boost by capital investment in Singapore, which nearly doubled in the first half of the year, as it rebounded from a 2018 slump, according to JLL’s data.

The city’s office sector accounted for nearly $4.6 billion in transactions during the period, to take up the largest share of investment. That investment tally was a 53 percent increase over the $3 billion recorded during the first six months of last year, although still a notch below the $4.7 billion recorded in 2017.

The spike in investment has been driven in part by large-scale transactions such as Oxley Holdings S$1.025 billion sale of Chevron House, a 32-storey commercial building at Raffles Place, to US real estate fund manager AEW Holdings, in a deal which was first signed in April .

“Singapore’s office sector has become a favoured investment destination over the last 12 months, largely supported by the market’s very favourable demand-supply dynamics and a benign interest rate outlook,” said JLL’s head of Southeast Asia, Chris Fossick.

Investors have been drawn by the city’s rising office rents, which the JLL regional chief said were likely to push capital investment up to a decade-long high this year.

Greater China Slips in Q2

While investment in Singapore has surged, figures for Greater China were more subdued, according to Cushman and Wakefield International’s report on capital markets activity in the second quarter.

The Chicago-based consultancy recorded a 3.3 percent increase investments to RMB 125.8 billion during the first half of the year, but noted that deal flow dropped steeply in the second quarter, when just RMB 40.2 billion in transactions were recorded — down 19 percent from the pace set in the April to June period of 2018.

The biggest dip was in Shanghai, where property investment fell 68.8 percent in the second quarter, compared to the same period last year, recording just RMB 13.85 billion from only 13 deals, a total which Cushman and Wakefield attributed to ongoing trade frictions and a slower Chinese economy.

The property agency reported that rising office vacancy rates and weakening rental growth in China’s tier one cities have made investors more cautious, prompting cities such as Guangzhou and Shenzhen to roll out office investment incentives and rental reimbursement policies.

Retail Becomes a Bright Spot

Investment activity picked up in core tier two cities, with Tianjin and Chengdu recording retail investment deals totalling RMB 7.9 billion and RMB 2.2 billion respectively, demonstrating the increasing attraction of investors to shopping centres in tier two cities, according to Cushman and Wakefield.

The continuing strength of retail reflects a trend across Asia Pacific, the least affected of all regions globally by the structural shifts hurting the retail sector. Retail investment in the region rose by seven percent for the first half of the year, compared with a 20 percent fall globally.

In Hong Kong, commercial real estate investment fell 51 percent to HK$53.3 billion during the first half of 2019, according to JLL, with tighter capital controls squeezing Chinese investors out of the market.

However, transactions of office assets in the world’s most expensive real estate during the second quarter reaching HKD 21.73 billion, a figure which is still approximately 60 percent above the city’s five-year quarterly average of HKD 13.64 billion.