Region sees 33% growth in commercial realty stakes

Year on year, transaction volumes have grown every quarter in 2013, with investment activity reaching $89.6 billion at the end of the third quarter, up 25 per cent on the same period last year.

Stuart Crow, head of Asia-Pacific capital markets, said yesterday that Asia-Pacific commercial-property markets continued to outperform on the back of unrelenting demand for exposure to direct real-estate returns in the region. 

The increased activity is coming from Asian pension and sovereign funds, together with new sources of global capital that are allocating to Asian real estate for the first time. 

“Following yet another quarter where growth has exceeded expectations, we have revised our year-end forecast from $110 billion to $120 billion. If this figure is reached, it will put 2013 on a par with 2007 as the strongest year ever by transaction volumes.”

Growth was led by the larger markets of Japan, China and Australia, which accounted for 69 per cent of the year’s completed transactions in the Asia-Pacific region. In Japan, third-quarter sales rose 139 per cent to $8.7 billion. Year-to-date transactions are now up 69 per cent to $29.5 billion, as the sentiment of both domestic and offshore investors continues to improve.

 

China  

Investment in China also grew significantly over the quarter, up 167 per cent to $7 billion. Year-to-date volumes grew 34 per cent to $16.6 billion as interest from offshore investors remained strong, accounting for more than half of quarterly transaction values. Despite concerns over credit expansion, there are early indications of more stable conditions in the country’s “real economy”.

Megan Walters, head of research for Asia-Pacific capital markets, said that although transactions had surged this year, as predicted, there were signs of caution over interest rates after the US Federal Reserve’s recent announcement about slowing its asset purchase programme. 

Longer-dated bond yields across the region have moved higher, highlighting concerns around the direction of global rates and prompting investors to underwrite interest-rate rises in their acquisition due diligence. 

“Nonetheless, given the robust pipe-line and continued strength of investor sentiment, we remain positive on the outlook for the remainder of the year.”

Investment into Singapore’s commercial real-estate market grew by a surprising 106 per cent from the second quarter with US$4.2 billion traded over the quarter. Volumes were supported by two heavily oversubscribed initial public offerings – SPH REIT (504 million Singapore dollars, or Bt12.6 billion) and OUE hospitality REIT (S$600 million), as well as the sale of the Grand Park Orchard hotel and Knightsbridge retail asset, brokered by Jones Lang LaSalle for S$1.16 billion. 

 

Australia 

Although investment in Australia slowed from the strong second quarter, it still grew 17 per cent year on year and 25 per cent on a year-to-date basis to US$4.9 billion. Offshore groups remain active, accounting for more than half of deal volumes this quarter, including recent interest from private groups entering the market. The contrasting domestic interest-rate cycle is also offsetting some of the heightened interest rate risk seen in other markets.

Transactions in Hong Kong were down 76 per cent to US$700 million as the cooling measures imposed this year coupled with current market pricing and interest-rate concerns push investors offshore. In the third quarter, close to US$2 billion of Hong Kong-based capital was deployed to other markets around the region.

Transactions in India totalled US$770 million in the third quarter, driven by a handful of acquisitions by corporate owner-occupiers and further investment from Blackstone, which continues to expand its presence in the country. 

While the challenging conditions in India’s investment markets are expected to continue over the short term, attractive prices and entry yields are proving a draw for private equity investors. Development projects continue to source funding, even in the difficult lending environment, although investors continue to favour development projects in more advanced stages, in order to mitigate risk.

While there were no major investment deals recorded in Indonesia over the quarter, the market continues to deliver strong rental growth. The depreciation of the rupiah – 18 per cent year to date – coupled with recent economic volatility has contributed to a widening of the country’s deficit, prompting the government to deploy foreign reserves in a bid to stem further currency depreciation.