APAC commercial real estate investment down 17%

The sale of a stake in Beijing’s Rayzone project was one of the largest transactions of the first half in Asia-Pacific

Asia-Pacific commercial real estate investment fell 17% year-on-year to $70.9 billion in the first half of 2022, as deal activity waned in several of the region’s major economies. region, according to JLL.

The office sector remained APAC’s most liquid asset class in the first six months of the year with investments totaling $30.6 billion, down 8% year on year from a high base, the global real estate consultancy said in its recent Capital Tracker report.

Industrial and logistics investment in the first half fell 37% year-on-year to $14.6 billion after a record volume in 2021, while investment in retail trade fell 31% year-on-year to $14 billion of dollars. Alternative assets, including data centers, saw a more moderate decline of 12% year-on-year to $1.4 billion.

“Investment volumes in the first half declined slightly from the high base set in 2021 as external factors emerged, causing investors to adjust their capital deployment strategies to align with a more aggressive rate-tightening cycle,” said Stuart Crow, CEO of Asia-Pacific Capital Markets at JLL. “Encouragingly, dry powder levels remain high and we see the appetite for real assets remains strong.”

Korean consistency

South Korea became APAC’s largest market by investment volume in the first half, remaining flat year-on-year at $15.3 billion, JLL said. Deal activity was boosted by large deals for two office buildings in Seoul: SK U-Tower, which SK REIT bought from chipmaker SK Hynix for $394 million, and A+ Asset Tower, which changed of hands between two Korean REITs for 334 million dollars.

Stuart Crow JLL

Stuart Crow, CEO of Asia-Pacific Capital Markets at JLL

In Singapore, investment jumped 81% year-on-year to $9.3 billion, supported by large offices and mixed-use deals such as NTUC Income’s sale of the Income at Raffles office tower in Bright. Ruby Resources, backed by China, for $717 million. Hong Kong, meanwhile, was up 18% year-on-year to $5 billion, driven by bulk industrial sales.

COVID-19 lockdowns weighed on mainland China in the first half, as investment volume in Asia’s biggest real estate market fell 39% year-on-year to $14.1 billion. The richest deals included Ping An’s acquisition of Sino-Ocean’s stake in Beijing’s Rayzone commercial project for $759 million and a GIC-backed ESR fund’s purchase of DLJ’s Shanghai industrial portfolio for $717 million.

Volume in Japan fell 33% year-over-year to $11.5 billion as logistics deals dried up, but the country landed the biggest deal of the second quarter: the Hulic purchase Goldman Sachs’ Minato Mirai Center Building for $835 million. Activity in Australia, meanwhile, fell 27% year-on-year to end the half at $9.8 billion.

Financial squeeze

JLL expects the pace of price discovery to pick up in the coming quarters, which will dampen deal activity in the region for the rest of the year.

The rising cost of debt in the first half was particularly felt in South Korea, where equity buyers were unable to find debt financing in a tighter credit market, the agency said. Liquidity for equity financing also declined and the number of bids for office contracts across the country declined.

“The market adjusted to new realities in the first half of the year, which translated into more subdued investment activity,” said Pamela Ambler, head of investor intelligence and strategy for APAC Capital Markets at JLL. “Capital remains committed to the Asia-Pacific property market, but deployments will be more selective as investors play the long game and the financial market price tightens on any investment for the foreseeable future.”

JLL expects investors to deploy more capital into value-added strategies by renovating old offices into green buildings as occupants increasingly choose higher-quality spaces post-pandemic.