According to CBRE's Q3 2016 MarketView data for the Asia Pacific region, overall property investment turnover during Q3 picked up slightly with an increase in transaction volume of 5.6% quarter-on-quarter to $24.6 billion. Investment sentiment improved following the bond and equity markets settling down in H1 2016 and the lower interest rate environment in the region.
Dr. Henry Chin
"Domestic capital was significantly active in Greater China this past quarter. China continued to see robust investment activity by domestic investors, with several large transactions concluded by Chinese insurance companies," said Dr. Henry Chin, Head of Research, CBRE Asia Pacific. "Additionally, market sentiment in Hong Kong improved as Chinese companies and experienced local and boutique real estate investment funds purchased commercial assets."
Across the region, Australia and Japan accounted for 52% of total cross-border investment this quarter. Japan saw robust activity from international real estate funds, while demand in Australia continued to attract interest from Asian investors as well as domestic capital. Elsewhere, South Korea saw growing interest from international investors seeking office investment properties, especially in value-added opportunities. In India, international investors with an existing presence continued to expand their portfolios.
With a number of large transaction deals in the pipeline, overall investment activity remains positive across the region in Q4 2016. However, despite steady investment activity, the region generally saw weaker leasing activity in the occupier markets.
The office market recorded slower leasing enquiries due to the stagnated financial sector and the tech sector showing moderated growth. Overall office rental growth slowed to 0.3% quarter-on-quarter whilst in China, Shenzhen witnessed its first Grade A rental decline since the onset of the Global Financial Crisis as landlords turned more flexible due to oversupply. Shanghai saw demand weaken, with rental growth set to see downward pressure in 2017 as new supply comes on stream.
On the other hand, supported by the start-up boom, there was healthy demand by co-working operators in certain markets as several sizable transactions were concluded in Hong Kong and Seoul.
In the retail sector, competition for prime space intensified as more retailers turned more risk-averse focusing on prime locations instead of secondary locations. Rents will remain stable and are unlikely to regain momentum in 2017, as retailers are now more careful in planning their store networks and budgets.
Other key Asia Pacific Q3, 2016 market highlights include:
Office capital values increased 0.9% quarter-on-quarter, leading to further yield compression amid strong investment demand.
Office net absorption rose 13% quarter-on-quarter, driven by the occupation of pre-leased space in new projects and stabilization in Singapore and Seoul. However, net absorption year-to-date declined 10% year-on-year.
F&B, sportswear and entertainment retailers remained active in the retail sector but overall activity was subdued and there was little new demand. The leasing market is expected to remain quiet over the remainder of the year despite an increase in short-term leases expecting to capture festive sales.
The declines in Tokyo and Shanghai have pressed the overall retail rents down by 0.1% quarter-on-quarter despite the continued support from the Pacific region. The magnitude of the correction in Hong Kong and Singapore continued to soften.
Overall logistics rents were flat at +0.1% quarter-on-quarter as the stronger performance in Sydney and Wellington was offset by rental declines in Hong Kong, Perth and Singapore.
Industrial capital values increased by 0.8% quarter-on-quarter, mainly driven by growth in Shanghai and major gateway cities in the Pacific.