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India Rising as Australia, Japan Dominate Commercial Investment Activity in 2015

India Rising as Australia, Japan Dominate Commercial Investment Activity in 2015

According to Knight Frank's Asia-Pacific Capital Markets May 2015 report, overall commercial real estate investment continued apace in the second half of 2014, with volumes (excluding land sales) hitting US$72 billion - a seven-year high and only marginally below the US$74 billion of H2 2007.

A significant weight of capital continues to be concentrated on Japan and Australia, which together accounted for 42% of all transaction volumes in H2 2014, up from 40% in the same period of 2013. With prime yields in the two most traded markets continuing to compress, there is an increasing appetite for value-add opportunities or secondary assets, as investors move up the risk curve.

Nicholas Holt, Head of Research for Asia Pacific at Knight Frank, says, "In terms of liquidity and financing, the Indian commercial property investment market has been a consistent underperformer. However, hope is on the horizon, not only with the ongoing improving economic fortunes of the world's largest democracy, but also with the framework for Real Estate Investment Trusts (REITs), an investment vehicle that invests in rent-yielding completed real estate properties."

Asia Commercial Investment Highlights:

  • Although recovery in the West would lend support, economies in Asia-Pacific continue to face significant headwinds.
  • A strengthening US economy coupled with an appreciating Dollar will lift external demand for the region's outputs.
  • A weaker Euro could erode the export competitiveness of the region and offset some positive impacts from a more stable Euro zone.
  • China's slowdown will continue to weigh on the region, especially Hong Kong and commodity exporters. With the government wary of inflating the property market further with cheap money, there is even speculation that it may devalue the Yuan.
  • H2 2014 saw slower rental growth
  • Knight Frank's Prime Shopping Centre Index increased by 0.3% in the second half of 2014, the same rate as seen in the year-ago period. Compared to the preceding six months, however, this represents a slowdown in momentum from 1.5% growth.
  • Holt adds, "Retail markets across the region continue to be impacted by the rise of ecommerce and shifting consumption patterns.  At the same time, challenging trading conditions in many secondary malls are putting some downward pressure on returns."

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