Investment activity in Asia falls in the second quarter but the lull is primarily the result of short-term weaker market sentiment as opposed to fundamental change in market conditions
Australia accounts for 24% of total investment in Asia Pacific in the second quarter, the largest of any market, as the Pacific recovers from a slow start to the year
Period witnesses rising demand for high quality core assets in established market as investors adopt a more conservative strategy amidst rising global economic worries
According to CB Richard Ellis (CBRE)’ Asia Pacific Capital Markets MarketView report for Q2 2011, commercial real estate sales in Asia Pacific totalled US$9.0 billion in the second quarter of 2011, a decline of 39% q-o-q, as investors in Asia turned more cautious following the March 11 earthquake and tsunami in Japan and the worsening economic picture in the United States and Eurozone. Whilst transaction volume in Asia fell by 52% q-o-q, the Pacific markets picked up strongly by 228% q-o-q, albeit coming off a low base following a slow start to the year.
The state of uncertainty in the global economy encouraged investors to drift towards conservative plays with the period witnessing a renewed focus on core quality buildings in established markets. Australia registered the greatest transaction volume across the region in the second quarter, accounting for 24% of total investment in Asia Pacific. Offshore investors including a number of Asian buyers were active in Australia during the period with the Sydney office market the subject of particularly keen interest. Buyers are keen to enter this sector now in order to capitalise on rising occupier demand for premium office space and the anticipated rental growth predicted to take place over the next few years.
Income producing properties are also in demand in Thailand, as seen with the recent sale of the Sofitel Silom Hotel to an owned associate of The Pioneer Global Group. The same 49.5% owned associate that holds the Pullman Pattaya Aisawan Resort purchased the 469 room hotel for THB 2.01 billion or THB 4.3 million per key. Ms. Eilidh Callum, Senior Economist of CBRE Thailand said, “Current market interest stems beyond income producing assets with strategically located sites also sought after, this year thus far we have seen City Virtue Limited purchase the 3 rai site (1.2 acre) on Sathorn Road from the French Government while developers L.P.N and Supali have both purchased land for residential development. A new entrant to the market, Boon Rawd Brewery Co., Ltd. – the company behind the world renowned Singha brand – purchased the former Japanese Embassy site (9 rai or 3.6 acres) on New Petchburi Road for THB 2 billion, which they intend to develop into a mixed use development”.
REITs and other listed property companies maintained buying momentum during the second quarter and were responsible for 27% of all commercial real estate transactions. REITs completed the majority of their purchases within their own borders but the period also saw a number of noteworthy cross-border acquisitions. The growth in activity of regional REITs has been particularly impressive over the past six months with total investment spend reaching US$6.6 billion in the first half, a record high. Five new REITs were listed during the period.
“Despite the recent fall in activity a significant volume of investment capital continues to look to access Asian markets and there is a shortage of sellers of better quality assets,” said Mr. Greg Penn, CBRE Executive Director of Institutional Investment Properties for Asia. “However, the limitations imposed on lending, particularly in Hong Kong and China has made it difficult and more costly to borrow. Prospective purchasers are attempting to share this cost burden with sellers beginning to adjust their expectations on pricing in the form of discounting,” he continued.
“The current lull witnessed in Asia is primarily the result of short-term weaker market sentiment and increased caution among investors,” commented Dr. Nick Axford, Head of Asia Pacific Research for CBRE. “Asian real estate is relatively well placed to weather the current global volatility and remains an attractive medium term investment proposition. However, the region is not immune from the issues affecting Europe and North America and we are keeping a close eye on how events unfolding elsewhere in the world are impacting Asia” he continued.
In the Pacific, forecasts point to an improvement in economic growth over the next twelve months, although much depends on what happens in the global economy. Looking ahead, foreign investors will be looking to increase their presence in the Australian commercial property sector, especially at the quality end of the market.
Asia Pacific Investment Volume (US$ Billion)