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January 18, 2017

Regional commercial real estate transactions held up remarkably well during the final quarter of 2016, despite market volatility following Brexit and US election results. For the full year 2016, Asia Pacific’s commercial real estate transactions totaled US$ 130 billion, up 5 percent against 2015, following a string of major transactions in various locations.

The full-year performance was lifted by strong performance in China (+24 percent y-o-y), Singapore (+34 percent), India (+11 percent) and South Korea (doubled over 2015 levels). However, Australia (-13 percent) and Hong Kong (-14 percent) were weaker due mainly to a lack of products. Japan’s full-year performance was stable. Cross-border investment volumes remained active in 2016, accounting for one-third of total transaction volumes regionally. Intra-regional purchaser transactions still dominated and accounted for about 54 percent of cross-border transactions, while the remainder were inter-regional purchaser transactions.

Major deals closed in the fourth quarter

The biggest real estate deal in the final quarter was the USD 2.9 billion acquisition of Century Link in Shanghai Pudong by a fund set up by ARA Asset Management with China Life. This was closely followed by CIC and Brookfield Asset Management’s acquisition of IFC Seoul from AIG Global Real Estate (USD 2.28 billion). These two fourth quarter deals, together with Qatar Investment Authority’s purchase of Asia Square One in Singapore (USD 2.5 billion) in the first half of the year, ranked as the three biggest Asia Pacific real estate deals for 2016.

The biggest JLL win in the fourth quarter was the collective sale of Raintree Gardens (a privatised HUDC estate) in Singapore by unit owners to UOL Group Limited/United Industrial Corporation for a sum of USD 224 million. Other major JLL wins during the quarter included the sale of Parkside Plaza (USD 200 million) and Richgate Plaza (USD 198 million) in Shanghai, as well as St. Collins Lane (USD 185 million) in Melbourne.

China, Singapore and Korea outshone other markets

China was the market that stood out in 2016 with a record USD 34 billion worth of deals closed. The strong result was due to both strong activity in Tier-1 cities such as Shanghai and Beijing, as well as major portfolio deals such as the Blackstone Group selling the SCPG Holdings Properties portfolio to China Vanke for USD 1.9 billion in the fourth quarter.

South Korea also has a record year with USD 16 billion worth of assets being transacted. The standout deals during the last quarter were the transactions of International Financial Center in Yeouido and the Blackstone Group’s purchase of Capital Tower in Gangnam from Mirae Asset Global Investments. Similarly, Singapore’s 2016 investment volume rose by 34 percent y-o-y to USD 9.4 billion, supported by mega deals such as Asia Square Tower One and Straits Trading Building. The year closed with a string of commercial real estate transactions including 77 Robinson Road and Capital Square.

India outshone other emerging Asia Pacific markets. The year finished with a string of major purchases from international investors, as part of their strategy to build portfolios and list them under REITs. Major fourth quarter deals including Brookfield Asset Management acquiring office space from Hiranandani Developers. Blackstone Group also acquired a 50 percent stake in a retail mall in Pune after buying three malls the previous year.

On the other hand, investment activity in core markets such as Australia, Japan and Hong Kong was quieter than a year ago, but mainly because of a lack of products. For example, quality core assets in Japan remained in demand but owners were unwilling to sell assets. As such, transaction volumes in Yen terms declined 13 percent from 2015.

International investors remained very much focused on Australia. Cross-border activity totaled USD 10.4 billion in 2016 and accounted for over one-half of yearly transaction volumes in Australia. Moreover, cross-border buyers continued to outpace cross-border sellers by about two to one. Hong Kong’s volumes were lower than the levels in 2015 but mainly because of the high base of comparison the previous year due to the Mass Mutual deal. Moreover, direct real estate transactional volumes have not taken into account very strong activity by Mainland developers in acquiring residential land and development sites.

We expect largely stable regional investment volumes at around USD 130 billion in 2017, as institutional investors look towards allocating more capital to real assets to meet benchmark total returns. The ongoing shortage of stock may continue but asset disposals will provide opportunities for core investors.

For more insights, download our 2017 outlook paper – Key commercial real estate investment themes in 2017 and beyond.

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Myles Huang

Asia Pacific Capital Markets Research Drector, JLL

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