Asia Pacific posts record real estate transactions volume in first three quarters of 2019, says JLL. Singapore, South Korea and Hong Kong were among the top ten investors of global real estate.
Asia Pacific commercial real estate transactions volume in the third quarter of 2019 have reached a record, bringing the year-to-date activity to a new high of US$128 billion, data from global real estate consultancy JLL reveals.
Real estate transactions volume for the period July to September climbed 18 per cent year-on-year to US$42 billion, representing the best third-quarter performance on record, according to JLL’s most recent Global Capital Flows report.
This represents a 10 per cent increase in real estate transactions volume versus 2018. Asia Pacific’s performance in the first three quarters of the year is significantly better than the global average real estate transactions volume growth of 1 per cent.
“Investors in Asia Pacific are seeing past current headwinds such as slowing growth and trade tensions,” says Stuart Crow, CEO, Asia Pacific Capital Markets, JLL. “Liquidity has strengthened in markets such as Seoul, Tokyo and Singapore, where occupier fundamentals remain solid. We are expecting Asian investors to further diversify their real estate holdings within the region and globally in the months ahead as they seek higher yields.”
“Despite building investor caution and selectivity, activity in the office sector has not slowed significantly with year-to-date volumes just 1% lower than the elevated levels seen during the same period in 2018. While investment has slowed considerably in historically strong office markets such as the UK and Hong Kong, due to ongoing uncertainty, liquidity remains strong in other markets, such as the U.S. and Singapore, where occupier fundamentals remain stout.”
Among Asia Pacific cities, Seoul is the most liquid with US$15.4 billion worth of real estate transacted in the first three quarters of the year.
Shanghai and Singapore stand out
Driving the increase in real estate transaction volumes in the region is China, where activity remains elevated thanks to the vigorous start to the year. Regional growth has also been supported by the robust recovery in Singapore, where year-to-date activity now stands at an all-time high, says the report.
“Asia Pacific continued its superlative performance with Q3 2019 representing the best third quarter on record as year-on-year investment rose by 18% to US$42 billion. Year-to-date activity now stands at US$128 billion, a new high and 10% better than the same period last year. Driving this increase is the region’s largest market, China, where activity remains elevated thanks in large part to the strong start to the year. Regional growth has also been supported by the robust recovery in Singapore, where year-to-date activity now stands at an all-time high. While South Korea did not improve its performance from last year, liquidity is on par with the record levels seen in 2018.”
Investment into Shanghai reached US$14.4 billion year-to-date with US$3.5 billion received in the third quarter. The Chinese city was the largest recipient of cross-border investments among Asia Pacific cities in the first three quarters of the year, followed by Singapore and Sydney. Globally, it ranked third after Paris and London.
“In the U.S., technology-oriented markets such as Silicon Valley, San Francisco, Boston and Seattle are seeing the strongest growth in office investment. These markets have also benefited from heightened leasing activity, which has supported greater investor demand. Similarly, the office market in Singapore has seen a surge in office investment this year, with volumes rising by over 175%, bolstered by strong rental growth and net absorption.”
Meanwhile Singapore’s office real estate sector was one of the strongest in the world with volumes rising by over 175 per cent year-on-year due to strong rental growth and net absorption. Deal volume in the city-state reached an all-time high, supported by Allianz and Gaw Capital’s US$1.15 billion acquisition of Duo Tower in July.
“The third quarter saw foreign investment into Sydney coming primarily from Canadian pension funds and Singaporean groups. All of this capital was allocated to the office sector, which has attracted 96% of all cross-border investment in Sydney so far this year. Although sustained demand from domestic and foreign investors alike has helped prime office yields compress, the Reserve Bank of Australia cut rates for the third time this year in September, to a record low of 0.75%. These cuts have helped improve yield spreads and are providing potential for some pockets of yield compression moving forward.”
As the third-largest recipient of cross-border investment in Asia Pacific, Sydney has logged several large-scale transactions so far this year. The biggest was Blackstone’s US$1.1 billion acquisition of a portfolio of office assets from Scentre Group during the second quarter. The third quarter saw foreign investment into Sydney coming primarily from Canadian pension funds and Singaporean groups. Year-to-date cross-border capital inflows to Sydney are 88 per cent higher than the same period last year, with US$3.5 billion invested by foreign investors.
Asian buyers have been active overseas
Asia Pacific markets were also among the biggest capital sources for cross-border investments in the first nine months of this year, with Singapore, South Korea, and Hong Kong making it to the top-ten list of capital exporters.
“Asian investors are spreading their capital more broadly and are looking at markets such as continental Europe where debt costs are low, assets are available and markets such as Germany and France are seen to be beneficiaries post-Brexit,” says Mr Crow.
“Asia Pacific’s real estate market is likely to hold steady as investors continue to allocate vast amounts of capital to commercial real estate in their search for yield without exposure to excessive risk.”
JLL expects Asia Pacific’s 2019 commercial real estate investments to grow 13 per cent year-on-year, indicating further an acceleration in the fourth quarter of 2019.