Asia Pacific Commercial Property Investment Leads the World, Spikes 13 Percent

Asia Pacific Commercial Property Investment Leads the World, Spikes 13 Percent

Commercial News » Tokyo Edition | By Michael Gerrity | May 3, 2024 8:24 AM ET

Japan, South Korea, Singapore top investment targets in early 2024

New data from the global real estate consultancy JLL indicates that the Asia Pacific region was the sole global area to experience an increase in commercial real estate investment in the first quarter of 2024, with investments hitting $30.5 billion. This represents a 13% rise year-over-year (YoY) and is the second consecutive quarterly increase after a slump lasting seven quarters.

This growth in investment is in the context of significant acquisitions by global investors and continued capital deployment by institutional investors. Leading the charge in the region, North Asia saw significant activity, particularly Japan, which was the most active market with $11.5 billion invested -- a 29% increase YoY. In Japan, domestic investors mainly targeted core assets, while international investors were drawn to more opportunistic ventures. The interest from overseas in Japan remained robust, spurred by favorable financial conditions, appealing yield spreads, and a weaker currency, with substantial investments flowing into offices, logistics, and industrial sectors.

South Korea also saw a substantial uptick in investment, pulling in $4.3 billion--a 73% increase YoY, predominantly in the office sector due to its solid fundamentals, low vacancy rates, and strong leasing demand. Singapore saw investments of $2.2 billion, marking a 14% YoY increase, with capital shifts favoring retail assets benefiting from optimistic rental projections and yield spreads. Conversely, Hong Kong experienced a sharp decline, with volumes falling to $0.7 billion, a 54% drop YoY, highlighted by a notable transaction involving the sale of a neighborhood shopping center by a local developer.

"The first quarter reflects a continued appetite from investors looking to capitalize on Asia Pacific's strong economic fundamentals and attractive pricing opportunities across markets and asset classes," said Stuart Crow, CEO, Asia Pacific Capital Markets, JLL. "We are seeing renewed interest from domestic and cross-border sources targeting a diverse range of risk profiles."

Region-wide, the office sector remained the most engaged, though investment dipped slightly by 1% YoY to $12.6 billion. However, logistics and industrial sectors grew by 36% to $7.8 billion, and retail sectors grew by 8% to $5.7 billion YoY. Despite ongoing pricing uncertainties, sectors like logistics and industrial, retail, and residential continued to see growth in cross-border activities, albeit at a modest pace.

Other major economies in the region, including Australia ($3.0 billion), mainland China ($5.6 billion), and Hong Kong ($0.7 billion), faced declines in investment volumes compared to the previous year, with Australia and mainland China each reporting a 19% drop YoY, and Hong Kong noting a significant 54% decrease.

"Hong Kong's investment market was quiet as interest rates remained elevated. While overall investment volumes lingered at low levels, the gradual return of inbound tourists could potentially give fresh impetus to investment activities. Retail was the most sought-after sector, while the local investors have shown interest in high street shops in traditional tourist districts. With the government's relaxation of the maximum loan-to-value ratio from 60% to 70% for non-residential properties valued at below HK$30 million, investment momentum in commercial properties is likely to improve. Notably, it is expected that rents for private student accommodation will continue to increase due to the growing number of non-local students. Private student accommodation will be a new investment property asset and attract the attention of the investors," said Oscar Chan, Head of Capital Markets, JLL, HK.

"Uncertainty surrounding interest rates continues to influence investment activity in Asia Pacific, but we have seen a partial rebound and recovery in 2024 as markets recalibrate their expectations," said Pamela Ambler, Head of Investor Intelligence, Asia Pacific, JLL. "Sentiment continues to be influenced by the strong U.S. economy despite higher base rates, potentially leading to a prolonged path to the beginning of a reduction cycle. Looking ahead, we expect further investment activity as repricing sets new benchmarks for trade, and investors adapt their portfolios and strategies to the current rate environment."

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