“Asia Pacific’s property markets continue to perform well despite global political and economic uncertainty,” says Stuart Crow, Head of Asia Pacific Capital Markets, JLL.
“Globally, the pace of deal making in Asia Pacific has raced ahead of Europe and the US, as transaction volume growth in this region is being supported by a continued cyclical recovery in developed markets such as Hong Kong, Australia and Japan.”
Transaction volumes in Hong Kong grew to US$14.6bn in the first half of the year compared to US$5.8bn during the same period in 2017. The city jumped to third on the list of the world’s most liquid markets after London (1st) and New York (2nd) following the sale of 73-storey office tower The Center for US$5.1bn. Not only was it the largest single-asset transaction of the year so far, but is also the world’s most expensive real estate transaction ever.
“Prices in Hong Kong’s Central sub-market have been pushed up due to a combination of tight vacancy rates, robust occupier demand and a lack of new supply. Coupled with an influx of Chinese occupiers and investors, these factors have accelerated an increase in real estate prices,” says Joseph Tsang, Head of Capital Markets, JLL Hong Kong.
“Despite the rising prices, investor appetite remains resilient. Between 2015 and 2017, mainland buyers spent an average of US$2.1bn per year on offices in Hong Kong. This year is set to exceed that figure given that, to date, there has been more than US$2bn worth of office acquisitions already transacted,” explains Mr Tsang.
Asian investors snap up global funds divestments
Meanwhile, Asian investors were the most active net buyers of commercial real estate in the first half of 2018. The group alone purchased 20% of office, hotel and retail assets disposed by global funds, who were the largest net sellers of commercial real estate – worth a total of US$31.5bn between January and June.
As outbound investment from China slowed, investors from Hong Kong, Singapore and South Korea stepped in to provide liquidity, demonstrating the depth of the buyer pool from the region.
“While many of these investors have favoured the US in prior years, pricing pressures in core markets and rising hedging costs are driving many Asian groups to consider investments in Europe instead,” explains Mr Crow.
“This has been the case for South Korean investors for instance, who face high hedging costs when investing in the US. In fact, South Korean purchases in Europe were double those made in the US at the half-year mark in 2018.”
Across the region, the office sector made up over half of all transaction volumes, with retail following at 20%. Industrial and logistics, which made up 13 per cent of transactions, saw 27% growth year-on-year as it continues to be favoured by foreign and domestic investors alike.
“Investors are upping their exposure to real estate in Asia, with a growing number of groups increasing their allocations to the sector thanks to its defensive qualities, steady income stream, and relative performance compared to other asset classes. Shifting demographic and technological trends are driving appetite for scale, especially in the logistics and alternatives sector,” adds Mr Crow.
For more information, download JLL’s Global Capital Flows report here.