According to new data by global real estate consulting firm JLL, commercial real estate investment activity in Asia Pacific declined by 30% year-on-year in the first quarter of 2023, as total investment activity in the region reached $27 billion.
"The market continues to be challenging, with many investors reasoning that the tightening of lending standards will provide further uncertainty for the commercial real estate market," says Stuart Crow, CEO, Capital Markets, Asia Pacific, JLL. "However, Asia Pacific remains more insulated and we're confident that liquidity risk is well contained in the region and a resumption of activity is a matter of when, and not if."
Japan outperformed the rest of the region, recording $8.9 billion in investment activity for the first quarter, up 4.7% year-on-year, supported by a surge of office disposals by Japanese corporates and acquisition activity by J-REITs. In contrast, Australia registered $3.7 billion in transactions, declining 26% year-on-year as office volumes responded to the ongoing impact of hybrid work.
China investment volumes reached $6.9 billion in the first quarter, a decline of 17% year-on-year, with limited activity outside Shanghai. Meanwhile, Hong Kong transactions moderated to $1.6 billion as most transactions were primarily small and mid-sized private capital deals. Similarly in Singapore, investment volumes dropped to $1.9 billion, retreating 67% year-on-year from a high base, owing to limited activity in the office and retail sectors.
Office market investments fell to $12.7 billion from $17.3 billion a year earlier, one of the sector's softest quarters on record, as interest rate headwinds and asset repricing impacted trading. Similarly, investment volumes in the logistics and industrial sector fell by 24% year-on-year as the number of $100 million-plus deals diminished because of a new cycle of price discovery and funding challenges.
Investment activity remained muted in the retail sector, posting $5.3 billion in the first quarter of 2023 - below the five-year quarterly average of $7.5 billion. In the first quarter of the year, large scale shopping mall trades largely disappeared in the region.
Investment in Asia Pacific's hotel market totalled $2.4 billion for the quarter, down 30% year-on-year, despite a strong rebound in hotel trading performance, as macroeconomic influences weighed on sentiment.
"While Asia Pacific lags in the current price adjustment cycle, we do not anticipate its price levels to materially correct. We expect the level of repricing to peak in the second quarter of 2023 and then moderate in the latter half of this year as borrowing costs are expected to come off with potential rate cuts going forward," says Pamela Ambler, Head of Investor Intelligence, Asia Pacific, JLL.