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September 5, 2016

The first half of 2016 saw us close one of the biggest deals globally, the sale of Singapore’s Asia Square Tower One, and we continue to move ahead with a couple of very large deals in the region. Although, by volume, activity across Asia Pacific in the first half of the year was four percent lower than the same period in 2015, we are still close to peak global levels and the current lull should be seen in the context of the exceptionally strong investment activity over the past few years. Much of the fall in volumes in the region can be attributed to a slow first quarter in Japan in which negative rates were implemented resulting in a number of deals being re-financed rather than sold.

Around APAC, cross-border capital is active in core markets such as Hong Kong, Japan, Singapore, Australia and China, accounting for about one-half of the biggest office deals in the past six months.

Looking ahead, we expect more investors to broaden their mandates to niche markets, such as self-storage, student housing and aged care.

Prime hotels and industrial & logistics assets in various markets, as well as the housing market in Japan, are also in the spotlight.

The pace of fund raising by private equity real estate (PERE) has also started to pick up. Twenty Asia-focused close-ended funds raised US$9.5 billion in the first half of 2016, exceeding the US$ 6.9 billion raised in the same period of 2015. Asia Pacific-focused close-ended PERE funds are also retaining US$29 billion of dry powder that is ready to deploy.

The expectation that most central banks will continue to keep interest rates low for the foreseeable future has driven down government bond yields around the world, and will continue to put pressure on entry prices for assets. In the ongoing search for yield, investors are increasingly looking away from prime and into secondary markets in Australia and Japan, although international investors still almost exclusively focus their Chinese investments on Shanghai.

Whilst there is talk of the current subdued investor sentiment remaining till the end of the year, we believe that commercial real estate markets are in a good position to weather political and economic storms and that regional volumes will pick up into 2017 as low interest rates and the continued search for safe havens maintains liquidity.

Over the next six to 12 months, Singapore should see stronger momentum in investment activity, while Australia and Japan have the potential to surprise on the upside. Activity in Greater China and South Korea should remain stable while more investors will continue to look for exposure to emerging locations in India and Southeast Asia, where strong growth fundamentals and higher yielding investment exist.

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Stuart Crow

Stuart Crow, Head of Asia Pacific Capital Markets, JLL

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