Commercial News » Hong Kong Edition | By Michael Gerrity | May 11, 2023 8:58 AM ET
According to data and analysis by global real estate consulting firm JLL, commercial real estate investment activity in Asia Pacific contracted by 30% year-on-year in the first quarter of 2023. Investment activity in the region reached USD 27 billion in the first quarter. Hong Kong's commercial real estate investment volume moderated by 10% to USD 1.6 billion (HKD 12.56 billion) during the same period.
Oscar Chan, Head of Capital Markets at JLL in Hong Kong said, "Hong Kong's commercial real estate investment volume declined in the first quarter as most transactions were primarily small and mid-sized private capital deals. Investors have shifted their focus to retail properties as they expected the retail's rents and capital value will rebound following mainland China's reopening. Such boosted the sales of retail properties, with over 56.2% of the total investment volume in retail properties. Hotels are another asset that would benefit from the recovery of tourism and have attracted the attention of investors. As such, we expect the transactions of retail, hotel and industrial properties would be active in the second half of this year."
"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," said Stuart Crow, CEO, Capital Markets, Asia Pacific, JLL. "However, Asia Pacific remains more insulated and we are 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 USD 8.9 billion of investment activity in 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 USD 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 USD 6.9 billion in the first quarter, a decline of 17% year-on-year, with limited activity outside Shanghai. Meanwhile, in Singapore, investment volumes dropped to USD 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 USD 12.7 billion from USD 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, volumes in the logistics and industrial sector fell by 24% year-on-year as the number of USD 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 USD 5.3 billion in the first quarter of 2023 - below the five-year quarterly average of USD 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 totaled USD 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," said Pamela Ambler, Head of Investor Intelligence, Asia Pacific, JLL.