Commercial property investment activity mostly in Australia, China and Japan
According to JLL's newly released Asia Pacific Capital Tracker 4Q21, full year 2021 commercial investment volumes rose 26% year-on-year, led by a surge of activity in Australia and China, and the continued resilience of Japan.
JLL reports Asia Pacific's commercial real estate market attracted $177 billion in direct investments in 2021, with capital deployment volumes returning to levels last seen in 2019.
"Asia Pacific real estate's recovery was solidified in 2021 as investors put more capital to work and demonstrated their long-term confidence in the real estate sector by diversifying investments across geographies and sectors. Investors remain underinvested in Asia Pacific property but through our conversations we believe there exists a strong conviction to increase exposure in 2022 with a real focus on larger deals and platform acquisitions," says Stuart Crow, CEO, Capital Markets, Asia Pacific.
Australia was the region's biggest draw for investment, with volumes rising to $35 billion in 2021, 170% higher than the previous year. Activity was driven by a surge in logistics platform deals throughout the year, with a record high of US$9.3 billion in transactions, including the AUD3.8 billion ($2.7 billion) purchase of the Milestone portfolio by ESR and GIC from Blackstone. Office and retail investments also rebounded, demonstrated by the marquee transactions of Melbourne Quarter Tower by National Pension Service of Korea and LINK REIT's 50% acquisition of three Sydney retail assets.
Transactions in China rose 21% year-on-year to $39 billion in 2021, driven by activity in retail, logistics and data centres. The listing of 13 pilot real estate investment trusts (REITs) were well-received by investors and represented another step in the maturing onshore property market in China.
Direct investment into Japan real estate reached $41 billion for the year, declining 4% year-on-year, despite strong activity in the multifamily market. In the office market, a notable transaction was the $2.8 billion sale and leaseback of the Dentsu advertising agency headquarters in Tokyo.
In 2021, logistics investments reached $48 billion, representing 50% growth year-on-year and a doubling of allocations since 2019. Investor interest in larger deals of over $300 million intensified in 2021, with JLL data showing a fourfold rise in total capital deployed into this sector over the past two years. JLL predicts interest will grow - supported by robust rental growth in Asia Pacific and investors' desire to further reposition their portfolios - despite a compression in logistics yields.
The office market continued to show signs of recovery as investors deployed $74 billion - 17% more capital in 2021 compared to 2020. This ensures the sector remains Asia Pacific's most liquid real estate asset class. JLL forecasts interest in offices to rise by between 20% and 30% in 2022 as rents and occupancies stabilize and investors focus on quality, health and safety when investing in Grade A buildings.
A recovery in consumer spending stoked a renewed interest in retail assets regionally in 2021. Retail transactions rebounded 67% year-on-year, resulting in US$36 billion in transactions, as consumption habits and attractive yields inspired investor confidence.
The gradual return of cross-border travel and investors taking a longer term view of the hospitality sector led to $8.5 billion in hotel transactions, representing 39% year-on-year growth. China, Japan, Korea and Australia made up 82% of total hotel transaction volume, according to JLL estimates.
"Investors want more exposure to Asia Pacific real estate to take advantage of attractive returns from the sector and are willing to move up the risk curve to diversify portfolios. With record amounts of dry powder and an expanding appetite, we expect increased momentum in 2022 and remain steadfast in our view that investment volumes will cross the $200 million mark this year," says Regina Lim, Head of Capital Markets Research, Asia Pacific, JLL.