APAC Industrial Property Investment Plunges 62%

Blackstone has acquired 49% of Dexus Australia Logistics Trust from GIC in the largest industry transaction of the first half

Investment in industrial real estate in Asia-Pacific totaled $7.2 billion in the second quarter, plunging 62% from record levels reached in the same period a year earlier, as rising costs Borrowing and rising asset values ​​compressed yield spreads in many markets in the region, according to MSCI.

Despite the sharp decline in industrial deal volume from the second quarter of 2021, which at $19 billion hit the highest total on record in a three-month period, MSCI noted in its Asia Pacific Capital report Trends released last week that by the amount of transactions closed, the first half of 2022 was still the second busiest ever, trailing only the same period in 2021.

Even so, with industrial property yields falling after the sector surge and capital costs rising, spreads have narrowed, MSCI said.

“The fall in the industrials sector was one of the biggest stories of the quarter, as high prices and sharply rising borrowing costs combined to dampen momentum,” said David Green-Morgan, chief financial officer. Real Asset Research at MSCI. “Instead, the focus has shifted to the office sector, with the majority of the region’s largest investors piling into the asset class this year.”

Pressed spreads

In the record quarter of 2021, industrial yield spreads over 10-year government bonds stood at 250-500 basis points for most major Asia-Pacific markets, according to MSCI data. . The ensuing bout of yield compression narrowed the spread to less than 100 basis points in several key markets, including Australia, South Korea and Hong Kong, in the second quarter of this year.

David Green-Morgan, Head of Real Assets Research at MSCI

With borrowing costs outpacing industrial yields, a slowdown in trading activity was to be expected at some point, but industrial spreads remain well above 100 basis points in two of the region’s largest markets, China and Japan.

Australia hosted APAC’s biggest industry deal in the first half, when Blackstone paid $1.5 billion to acquire a 49% stake in Dexus Australia Logistics Trust from Singapore’s sovereign wealth fund GIC.

Still, the country was not immune to worries about rising borrowing costs and weakening economic growth in the second quarter, the volume of all real estate transactions priced at $10 million or more. falling 26% year-over-year to $8.4 billion, dragged by a sharp drop in industrial investment.

“As in the rest of the region, large deals are holding up much better in Australia, although small deal volumes have contracted significantly,” Green-Morgan said.

Extreme swings

MSCI listed just two other big-ticket industrial deals in the second half, with a GIC-backed ESR fund buying DLJ’s Shanghai industrial portfolio of 77 properties for $713.6 million and China Resources scooping up a pair of warehouses in Hong Kong from Kerry Properties for $588.8. million.

The drop in the industrial sector in the second quarter contrasts sharply with the volume of office transactions in the region, which rose 9% year-on-year to $22.1 billion, as well as investment in apartments, which increased rose slightly 4% year-on-year to $2.2 billion. .

“Extreme swings in trading and price activity mean that some investors who entered the sector late when yields were at their peak will face an unenviable position this year amid the rising cost of debt. “said MSCI. “In contrast, the rest of the sectors that saw more moderate growth rates last year continued to grow, with activity picking up in the office and accommodation sectors.”