According to JLL, Shanghai became the top city for real estate investment in Asia Pacific in Q4 2016. Thanks to a steady stream of transactions at the end of the year, it ranked number five globally as a real estate investment market in 2016, with New York at number one followed by London, Los Angeles and Paris.
Shanghai's strong performance was driven by a number of high profile transactions, including ARA Asset Management's $2.91 billion investment in the Century Link complex in October, the biggest single-asset property transaction in Asia Pacific in 2016.
Meanwhile, in the retail sector, the largest transaction of the year involved Chongbang Development conducting an 80 per cent equity stake buyback of Shanghai's Jinqiao Life Hub for $825 million. Other notable deals include the SCPG Holdings Properties portfolio, purchased by China Vanke from Blackstone Group for $1.9 billion.
"With political upheavals such as Brexit and the surprising U.S. election result, an increasing number of investors are looking at opportunities in Asia Pacific and specifically China," says Joe Zhou, Head of Research, China, JLL. "Domestic capital was the main driver of real estate transaction volumes in 2016, with domestic investors often outbidding foreign investors in many transactions. We believe that China - particularly Tier 1 cities - remains attractive to foreign investors as the market matures."
Looking beyond cities, total real estate transaction volumes in Asia Pacific grew by five per cent in 2016 and 21 per cent year-on-year in Q4, with certain countries in the region driving investment activity. Real estate transaction volumes for Q4 2016 totaled $15.5 billion in China, $7.4 billion in South Korea and $7.2 billion in Japan, as buyers aimed to close deals before the year-end.
Looking ahead in 2017, the regional outlook remains positive with buoyant investor and occupier activity. "While the uncertain political environment of 2016 is set to continue into 2017, real estate assets continue to attract capital, preserve value and serve as a crucial part of a diversified global investment portfolio," says Dr. Megan Walters, Head of Research, Asia Pacific at JLL. "Continued appetite for real estate is expected to see investment volumes hold up, with core markets such as Sydney, Tokyo and Singapore attracting interest. We expect stronger activity in Indian real estate, with investors likely to be interested in Southeast Asian countries such as Vietnam and the Philippines that are showing better prospects on rental growth."
Strong occupier activity in Q4 2016
Office leasing activity surged 23 per cent year-on-year in Asia Pacific in Q4 2016, in large part due to strong growth in India, where volumes were up 82 per cent. Broad-based demand drove a substantial increase in Delhi, while leasing activity from tech firms supported moderate growth in Bangalore.
Financial services and technology firms remain key occupiers in the office sector across the region. Office rentals rose the most in Sydney and Melbourne at 22.5 per cent and 13 per cent year-on-year respectively. In Sydney, there is competition for office space in part due to the demolition of buildings to construct the Sydney Metro.