Investment in commercial real estate within Asia Pacific (Apac) clocked in at US$27.7 billion ($36 billion) in the 1Q2023 according to the data collected by the world-renowned real estate consultancy firm JLL. It’s an increase of 30% decrease in y-o-y compared to 1Q2022.
The decline in investment volumes is due to the headwinds of interest rates, as well with adjustments to the price of assets according to JLL. “The market is still difficult, with a lot of investors believing that tightening lending standards will cause more uncertainty in residential real estate” states Stuart Crow, JLL’s CEO capital markets, Asia Pacific.
The majority of the region experienced smaller volumes, with the exception of Singapore where there was the 66.8% y-o-y decline to US$1.9 billion. South Korea saw a 69.5% decrease in its y-o y growth to US$2.5 billion. China investment volume dropped 16.4% y-o-y to US$6.9 billion, and Australia saw an 25.6% y-o-y fall to less than $6 billion.
Japan was the only Apac country to experience an increase in the volume of investment that grew by 4.7% y-o-y to US$8.9 billion. “The Japanese office sector saw a significant increase in volume which was supported by the disposal of headquarter buildings from Japanese corporations, as well as an influx of acquisitions by J-REITs” JLL’s report claims.
The decline in Apac investment volume in the 1Q2023 was felt across all industries. Office market investment fell 26.6% y-o-y to $12.7 billion during the first quarter, which JLL declares to be one of the weakest quarters in history. In the same way, investments in the industrial and logistics sector decreased by 24% in a year-on-year basis, as deals of 100 million or more deals decreased due to an ongoing period of pricing discovery and financing problems.
In the retail industry the investment volume was US$5.3 billion in the 1Q2023 less than the five-year average quarterly which was US$7.5 billion. In addition, there was Singapore where witnessed retail deals like the purchase of fifty% share of Nex retail malls from Mercatus Co-operative to Frasers Property and Frasers Centrepoint Trust for $652.5 million — major shopping mall transactions were absent from the remainder of the region.
However, despite a robust recovery in the market for hospitality hotels experienced US$2.4 billion in investment in the 1Q2023, a drop of 30% in a year-on-year comparison. “Ongoing macroeconomic issues as well as the current US and European financial crisis have significantly affected hotel transactions in Apac in the first quarter of this year.” JLL highlights.
But JLL’s Crow remains positive regarding prospects for the Apac commercial real property market. “Asia Pacific is more secure and we’re sure that liquidity risk is controlled within the region. Resumption of activities is dependent on the time it happens, not when.”
Pamela Ambler, head of investment intelligence of Apac at JLL She adds that in the current cycle of price adjustments occurring all over the world, she doesn’t think that the prices in Apac to be significantly corrected. “We anticipate the rate of repricing will reach its highest during the 2nd quarter 2023, and gradually decrease in the second part of the year, as the cost of borrowing is expected to fall, accompanied by the possibility of rate cuts in the future,” she says.
According JLL, over the last one year Apac changes in price have fallen behind other countries like the US where asset prices have dropped by 20% or 40% in comparison to the earlier 2022 levels and Europe where the majority of investors have experienced cap rate increases of between 100 and 150 basis points. “Pricing dynamics are more complex across Asia as a result of softening being most noticeable on the continent of Australia (15%-20%) and South Korea (10%-15 %),” the report says.