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August 23, 2016

Mainland Chinese and Singaporean investors have been the biggest movers of commercial real estate capital within Asia Pacific in the first half of this year.

China’s real estate investment into Hong Kong reached US$2.2 billion in the first six months of this year, representing the largest cross-border capital flow within Asia Pacific, a signal that mainland Chinese firms still see the territory as a hub for business in and out of China. Separately, Singaporean real estate investment into Japan and Australia totaled US$1.7 billion and is the second-largest source of intra-regional real estate capital flows, according to JLL’s latest data.

State-owned conglomerate China Everbright Holdings, with assets across the spectrum from banking to tourism, purchased Dah Sing Financial Centre for US$1.3 billion in the first quarter. The 39-storey Dah Sing property has a gross floor area in excess of 400,000 square feet, and the transaction equates to a purchase price of almost US$3224 (HK$25,000) per square foot. In the second quarter of this year, China Resources Enterprise completed the US$483 million purchase of Kwai Chung Logistics Centre.

Going forward, JLL is expecting Hong Kong owners to dispose of more properties, particularly to Chinese buyers. “Investors and end-users will continue to favour office properties for long-term investment, as Chinese corporate demand supports rents,” according to JLL’s latest Asia Pacific Capital Markets Report.

Singapore’s purchases within the region included Ascendas-Singbridge Group’s acquisition of a prime office building in North Sydney, marking its inaugural entry into the Australian commercial property market, and AEP Investment Management’s purchase of a Brisbane office building. Key buyers of assets in Japan included Mapletree Investment and Redwood Group.

Financial market volatility will likely enhance the attractiveness of Australia and, to some degree, Japan as preferred destinations for global capital,” says Dr Megan Walters, Head of Research Asia Pacific Capital Markets at JLL. “Given Australia’s stable governance and transparent market structure and Japan’s negative interest rate policy, these countries may continue to attract not just investment capital from within the region but also capital from outside the region.”

Mainland Chinese investors were also active in Australia and Japan. Besides Hong Kong, mainland investors moved US$200 million into Japan and another US$300 million into Australia in the first half of this year.

On the back of continued global volatility, inter-regional purchaser capital flows – purchases in Asia Pacific by investors based outside of the region – fell 45 percent in the first half of the year. This compares with intra-regional buyer transaction volumes, which climbed nearly 80 percent to reach US$7.1 billion in the first six months, compared with US$4 billion in the same period in 2015, as Asian investors preferred markets closer to home.

The proportion of cross-border purchasers of office buildings across Asia Pacific has increased in recent years, an indication that investors have been seeking portfolio diversification in terms of both geography and asset class. In 2014, cross-border investment opportunities accounted for about 18 percent of office transaction volumes, compared to approximately one quarter of comparable transactions in 2015 and 2016 year-to-date.

Cross-border purchasers for office transactions looking for investment opportunities are focusing in core countries such as Hong Kong, Japan, Singapore, Australia and China.

“Politics is likely to continue to have a major impact for the rest of the year – both positively and negatively and, as investors increasingly adopt risk-off strategies, these countries will continue to attract real estate capital because of its political stability, robust financial system and strong liquidity,” says Dr Walters.

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Dr. Megan Walters

Head of Research, Asia Pacific

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