Australia topped the quarterly rankings for commercial real estate investment transactions in the Asia-Pacific, bolstered by renewed domestic investor confidence in the wake of the national election and foreign capital inflows, in what was otherwise a somewhat lacklustre second quarter across the region, Real Capital Analytics’ (RCA) Asia-Pacific Capital Trends Q2 report showed.
In China and Japan, quarterly investment volumes fell to the lowest levels in a decade, as both domestic and cross-border investment flows dried up.
David Green-Morgan, RCA’s managing director for Asia-Pacific, says, “Australia’s leading second-quarter performance clearly stands out among the top five biggest Asia-Pacific real estate investment markets, as there was a sharp uptick in the consolidation of property ownership over the period and a handful of large domestic deals.
But the generally dismal picture elsewhere, with the notable exception of Singapore, is less gloomy than it may at first appear, because it is being compared with last year’s record-breaking deal volumes in key markets.”
Total Asia-Pacific real estate investment transactions were down 19% year-on-year in the second quarter to US$34.4 billion, with the US-China trade war and general economic slowdown weighing on sentiment.
The quarterly comparative data should be viewed in the light of extremely strong deal activity in most markets in the first-half of 2018, however, and with the caveat that RCA has already recorded US$10 billion in completed transactions for the third quarter of this year - and with a further US$20 billion pending - indicating the Asia-Pacific overall could be poised for a bounce-back in the remaining months of 2019.
Risk aversion appears to be an important consideration in investors’ decision-making against the current volatile geopolitical and economic backdrop in the Asia-Pacific and capital is flowing to the largest, most transparent, and liquid real estate markets, rather than to regional or smaller cities.
Of all the capital deployed in the region in the second quarter, 69% was allocated to the eight largest markets – the highest proportion since 2011.
Hong Kong held onto its position as the top Asia-Pacific metropolitan investment market in H1 2019, despite a 46% fall in transactions volume year-on-year to US$6 billion. The comparative extent of the decline was magnified by last year’s record deal activity during the same period and the second quarter of 2018 was the strongest quarter for investment during the last 12 months.
Asia-Pacific office yields have started to move up in some markets across the region and Hong Kong was the first large city to register this recent trend.
But the picture is not uniform across the metropolitan area, as investors have been switching their attention from the financial district in Central to Hong Kong Island suburban neighbourhoods and beyond to Kowloon and the New Territories, where office yields declined to 2.6% on average in the second quarter. This compares with the average office yields of 2.4% currently achieved on Hong Kong Island.
“Much of the investment activity in the office sector in the second quarter of this year took place in locations such as Kowloon East and suburban markets on Hong Kong Island. This is a change from last year when there was a frenzy of deals concentrated in the Central financial district,” says Green-Morgan.