Domestic Investors Still Dominate Activity, Japan Regional Standout
While commercial real estate transaction volume in Asia Pacific declined slightly by 2.3% q-o-q in Q1 2013 to $21.2 billion, the period saw the highest turnover of any first quarter since the onset of the global financial crisis in 2008. Japan was the standout performer regionally as transaction volume surged by 243% q-o-q to US$7.3 billion, with J-REITs completing numerous noteworthy deals along with Australia, which also saw a high level of investment activity. Japan, China and Australia largely drove activity this quarter.
Japan was the regional standout, with the election win of the Liberal Democratic Party and its subsequent stimulus policies boosting market sentiment, contributing to its 234% surge in transaction volume and strong activity by J-REITS. Philippines, Thailand and Indonesia continued to buoy investor confidence, with sentiment in Malaysia also remaining upbeat. Several markets saw a slight decline in turnover q-o-q with subdued deal volumes. In Hong Kong, a doubling of stamp duties resulted in a 27% q-o-q decline in deal volume. The mood also soured in Taiwan with domestic insurance turning inactive following changes to minimum yield requirements, along with sentiment weakening in South Korea.
Andy Hurfurt, Executive Director of CBRE’s Investment Consulting in Japan, commented: “Expectations that the LDP’s aggressive stimulus will be a “game changer” for the Japanese economy, combined with improving real estate fundamentals, created a surge in investment volume during the quarter. J-REIT’s and private REITs were the most determined buyers, but overseas investors also showed a notable increase in deal appetite. Competition for good quality, well located properties in Tokyo will only increase in the near term, and this has already encouraged investors to turn to the best buildings in regional markets. ”
Over the quarter, domestic buyers continued to edge out local foreign groups, accounting for 86% of total investment turnover. While aggressive market pricing is acting as a barrier for international funds, local investors have adopted a long-term view, with less concern over yields. Cross-border investment volume totaled US$2.9 billion, an 11% q-o-q decline. Australia and China remain the top destinations for international capital, with Australia alone accounting for 25% of regional cross-border acquisitions. Shanghai continues to be the primary focus for overseas investors in China, along with increasing interest in tier II and tier III cities.
“Buying momentum in the region will continue to be fueled by a combination of improved investment sentiment, mild regional economic recovery, high levels of liquidity and low borrowing costs,” Dr. Nick Axford, Executive Director and Head of CBRE Research, Asia Pacific commented. “Asian high-net-worth investors and foreign property funds are expected to play an active role in continuing to fuel this buying activity.”
“The region is expected to see a number of significant transactions, particularly in Australia and Japan. While Australia will remain the top destination for cross-border investment, overseas buyers will likely face increasing competition for quality assets from property funds and domestic REITs,” said Greg Penn, Executive Director, CBRE Investment Properties.
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