By Stuart Crow, Head of Asia Pacific Capital Markets at JLL.
Investor appetite for commercial real estate transactions in Asia Pacific remains unabated. Transaction volumes in the first nine months of 2017 totaled US$95.8 billion, up 11 percent from the same period a year ago. Robust activity in Singapore and India kept the region on track, while transactional activity was also higher in Greater China and South Korea and remained largely stable in Australia and Japan.
Several landmark deals have closed in recent months including CapitaLand’s purchase of Asia Square Tower 2 in Singapore from BlackRock (US$1.54 billion) in September. The sale generated strong interest from major global investors and sends a clear message about the continued recovery of the Singapore office market.
The acquisition was shortly followed by the sale of The Centre in Hong Kong’s Central Business District to a consortium of mainland Chinese and local buyers for US$5.2 billion in October, making it the world’s largest ever commercial property deal for a single building.
Investors are also seeking opportunities via different channels. Sharpoorji Pallonji Group and Allianz established a US$500 million Indian Real Estate Fund in October, targeting the country’s office market. Platform deals remain the preferred route for investing in China’s logistics sector, and we see growing interest in alternatives real estate and huge opportunities from a growth perspective.
We are projecting that regional transactional volumes will grow by five percent from US$135 to US$140 billion in 2018, driven by continued momentum in core real estate markets and increased interest in emerging locations such as India. Deal availability is also rising in locations such as Japan and Australia as owners are willing to divest in view of strong pricing in the current phase of the market cycle.
Inter-regional investment should remain robust, with outbound real estate capital from Asia into the U.S. and Europe coming in at over US$26 billion in the in the first nine months of 2017 alone.
With the gradual pace of interest rate normalization and positive yield spreads over real government bond yields in many markets, real estate yields have the potential to compress further.