External market conditions and political uncertainty influence investor strategies
According to JLL's recently released Asia Pacific Capital Tracker for the third quarter of 2022, commercial investment volumes declined by 29% year-on-year in the third quarter of 2022, reaching $28 billion. This was due to a combination of fewer trades in major markets, rapid currency depreciation against the US dollar and the rising cost of debt sparked by an aggressive tightening of interest rates in the US.
"Conditions in global real estate markets have changed throughout the year and, as a result, investors active in Asia Pacific have adopted a more cautious approach to capital deployment in the third quarter. Despite the ongoing macroeconomic challenges, inflationary concerns, and the rising cost of debt, investors we are speaking to remain broadly positive on Asia Pacific real estate and maintain medium to longer term plans to continue to expand their footprint in this region," says Stuart Crow, CEO, Capital Markets, Asia Pacific, JLL.
Throughout the third quarter, activity was robust in Australia ($7.3 billion), up 15% year-on-year supported by several high-profile office transactions in Sydney and Melbourne. Korea remained one of the region's most resilient markets in the third quarter, with $6.4 billion in transactions closed, representing a modest 8% year-on-year decline. Singapore, which reported $2.3 billion for the quarter, was up by 116% year-on-year, on the basis of large office transactions, coming off a low base in the corresponding period in 2021.
A depreciating yen pushed volumes down in Japan to $4.6 billion, as weak activity across most sectors led to a 61% year-on-year decline. Volumes in China ($3.3 billion) continued to decrease, down 55% year-on-year in the third quarter due to the lingering impact of Covid policies. Hong Kong ($720 million), down 75% year-on-year, also felt the pinch of fewer en-bloc transactions and the broader impact of external factors.
Sector-wise, office transactions moderated regionally to $14.4 billion, representing a year-on-year decrease of 33%, influenced by sluggish volumes in Japan and China coupled with softer sentiment amid a widening pricing gap between buyers and sellers. Logistics and industrial transactions also declined by 52% to $4.6 billion as rate hikes and the rising cost of debt prompted price corrections in several markets.
Retail investment in Asia Pacific was muted at $4.5 billion, declining by 13%, with dampened consumer sentiment and discretionary spending outlook leading to less investor interest. Hotels remained the region's most consistent performer, reaching $8.4 billion to date in 2022 on the back of a recovery in international and domestic tourism, which is driving global and regional investors into the asset class.
"When considering the high transaction base in 2021 and the combination of economic, policy, and geopolitical factors, the softening of third quarter volumes is not surprising. Investors are understandably treating capital deployment strategies differently given the fluid external environment and we'll likely see some decision delays in the fourth quarter while awaiting more market clarity on the state of the global economy. In the interim, we expect the level of repricing to sharpen and the price discovery phase to extend throughout next year," says Pamela Ambler, Head of Investor Intelligence, Asia Pacific, JLL.