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June 5, 2017

After the uncertainty of last quarter where U.S. President Donald Trump took office and China announced tighter monitoring of its capital outflows, investment activity during the first quarter of 2017 surpassed expectations. Capital continued to seek exposure to real estate given the current pressure on investment returns.

In Asia Pacific, commercial real estate transactions held steady at US$25.3 billion during the first quarter of 2017. Of note were strong performances in Singapore (which grew 189 percent year-on-year) and Japan (which increased by 16 percent year-on-year). China’s quarterly performance was stable but volumes were slightly weaker in Hong Kong and Australia, where transactions went down by 27 percent and 28 percent year-on-year respectively.

Domestic buyers still dominated but cross-border buyers remained active and accounted for 25% of total purchases regionally. International funds such as LaSalle Investment Management, PGIM Real Estate and Blackrock continued to acquire core assets in Japan, Korea and Shanghai. Singapore investors were active but Chinese buyers were quieter in the region. That said, a Chinese developer bought GSH Plaza in Singapore for US$512 million, one of the largest deals in the city during the quarter.

Greater China, Japan and Australia accounted for the biggest deals brokered by JLL. These included Mapletree selling the mixed-use Silver Court in Shanghai (US$479 million), LaSalle Investment Management buying the Mioka shopping centre in Japan (US$276 million), as well as the sales of World Trade Centre in Melbourne (US$203 million) and the Zung Fu Aberdeen Garage Building in Hong Kong (US$201 million).

A look ahead

Institutional investors will still be looking towards allocating more capital to regional real estate assets. According to ANREV, Asia Pacific was the only region to see an increase of capital raised in 2016, with 80% of non-listed funds with an AP strategy raising a total of US$22.9 billion. Half of the total capital was allocated to core investment destinations with China and Australia attracting the most investment

Market conditions should position Australia, Singapore and India to see stronger momentum in investment activity over the next six to 12 months, while Japan and Greater China will likely remain stable. We also expect more investment into India as Prime Minister Modi exerts his control over both houses of Parliament, allowing for quicker reform.

There is greater investment interest in Southeast Asia but opportunities for development are more common than asset sales. The consensus is direct commercial real estate investment activity regionally will remain stable throughout 2017.

With the weight of capital chasing real estate assets and as the cost of capital for property investors remains favourable, core real estate yields will continue to stay low. Yields in some of the region’s markets might even compress further when compared with their long-term ranges.

You may be interested in US Market Perspective Q2 2017 as well.

Stuart Crow, Head of Asia Pacific Capital Markets, JLL
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