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May 1, 2018

After a record-breaking fourth quarter 2017, commercial real estate investment in Asia Pacific hit yet another high in the first three months of 2018.

Investment in the region hit US$40 billion, 22 percent higher than the previous record set in 2008 and up 34 percent on the first quarter of 2017.

The unprecedented activity was driven by strong demand in the region’s core markets of Japan, India, Hong Kong, Australia and China.

The region also benefitted from the most traded city in the first three months of the year. Tokyo surpassed London to take the global crown with US$9.1 billion of investment in Q1 as investors almost exclusively targeted the city’s office sector.

Despite growing trade tensions and elevated stock market volatility, investors are still seeking value in real estate. Global real estate investment in the first quarter of 2018 came in at US$165 billion, 15 percent higher relative to the same period last year, and hitting the highest Q1 level in 10 years.

While fundamentals in many markets remain strong, JLL’s Pranav Sethuraman expects investment to soften by 5 to 10 percent, to around US$650 billion, as “investors pursue real estate through new avenues outside of traditional single-asset acquisitions.”

‘The growing prominence of debt financing, M&A activity, and alternative sectors all demonstrate that while the way investors access the sector may be shifting, their appetite for real estate has not diminished,” he explained.

Americas: U.S. starts 2018 on a strong footing, leads regional growth
After four consecutive quarters of declines, the Americas started 2018 on a high with investment activity rising by 18% to US$68.8 billion. The U.S. led the activity with volumes increasing 23% to US$62.8 billion. Elsewhere, Brazil surpassed the US$1 billion mark for the third successive quarter, despite ongoing political volatility while investment activity in Canada remains notably higher than the historic first quarter average.

EMEA: Core markets drive growth
Transaction levels in Europe hit US$56.3 billion, mirroring the start of 2017 but still 18% higher than the first quarter average. Leading the way are the region’s two largest markets, the UK and Germany, where volumes are up by 10% and 13% y-o-y respectively. Investors continue to seek exposure to the London market, shrugging off Brexit concerns while in Germany, investors are drawn to strong economic and employment growth. Denmark (3%), Switzerland (74%) and Portugal (138%) all recorded growth, balanced by declines in France (-3%), Italy (-3%), Spain (-30%) and Sweden (-53%). Investment in Poland surpassed the US$2 billion mark as investors look to take advantage of a rapidly developing market.

Asia Pacific: Asia Pacific continues to shatter records
Underpinning the record-breaking quarter was strong performances in the region’s biggest markets with Japan (23%), Hong Kong (72%), Australia (87%) and China (93%) all recording growth. South Korea (-18%) and Singapore (-39%) were the biggest markets in the region to see declines. In Japan, strong office leasing demand has led to reduced vacancy rates and higher rents. While, after a relatively quiet 2017, J-REITs returned to the market with over US$2.2 billion in acquisitions, a 62 percent increase from the first quarter of 2017.

Click to read more about cross border commercial real estate investment.

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Pranav Sethuraman

JLL's Global Capital Markets team

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