Investment volume in Asia-Pacific plunges 42%

Despite subdued sentiment this quarter, investment volume is expected to increase in the coming months, given continued investor interest in non-core assets and an easing lending environment.

Overall, the slow start to the year was driven in part by New Year holidays in January and the high investment volume witnessed in the second half of 2011, which removed several assets from the market. The only market to buck the downward trend was Hong Kong, where investment volume surged 100 per cent quarter on quarter thanks to the improved lending environment. All other markets across the Asia-Pacific saw a decrease in investment volume.

According to James Pitchon, executive director and head of CBRE Research, Thailand the Kingdom continued to steadily recover from the floods and local private investors displayed a renewed interest in acquiring income producing assets. The period also saw a Singapore-based property fund acquiring an office building in Bangkok. Residential developers of low-rise housing have focussed on new land acquisition in areas that were not flooded.

Domestic capital continued to drive the market, while cross-border acquisitions declined. Domestic capital during the first quarter of 2012 accounted for nearly 86 per cent of the total investment volume. Deals completed by Asia REITs, domestic private investors and end-users comprised 55 per cent of total investment turnover, up from 44 per cent recorded in the fourth quarter 2011.

On the other hand, cross-border acquisitions continued to slide in the first quarter, falling 69 per cent quarter on quarter to $1.6 billion and accounting for just 14 per cent of the total investment volume during the period.

Investors continued to shift their focus away from core office assets on account of the slowing leasing market, lack of quality products for sale and more attractive yields available in other sectors. Investment volume for office assets was just half of that recorded in the fourth quarter 2011, while volume in the retail sector was stable, down just 4 per cent quarter on quarter. Demand for this product is anticipated to increase as domestic consumption grows and international retailers expand across the region.

Demand from local investors should remain firm in the near future, as evidenced by robust interest for retail and logistics assets. This, combined with the tight lending environment beginning to ease as central banks across the region adjust monetary policy, will likely have a positive effect on the market.

The tight lending environment in Asia Pacific began to alleviate in quarter one as a number of central banks across the region adjusted monetary policy. The Bank of Thailand maintained the policy rate at 3 per cent to support a smooth recovery of economic activity to normal levels while keeping inflation within target.

“Activity is expected to pick up over the coming months. Domestic capital will continue to account for the bulk of transactions as institutional investors, particularly the larger international groups, remain cautious about the global outlook. Investors will continue to shift their focus away from core office assets to other sectors where more attractive yields are available,” said Nick Axford, executive director and head of CBRE Research, Asia Pacific.