ASIA-PACIFIC direct commercial real estate investment has exceeded market expectations in the first half of this year, growing 21 per cent on year to US$59.7 billion, according to Jones Lang LaSalle.
Sales have also increased by 21 per cent on quarter to $32.6 billion.
The growth was predominantly driven by the largest markets with Japan, Australia and China all experiencing strong deal flow throughout the quarter.
In Thailand’s smaller market, transactions surged more than 95 per cent in the first half.
They were concentrated in the hotel industry, reflecting increased availability of properties for sale and strong investor interest in key markets, particularly Phuket and Bangkok.
In Japan, investor confidence has been boosted by improving economic indicators following government stimulatory measures. Acquisitions have been dominated by J-REITs, whose inclusion in the Bank of Japan’s asset purchase programme has supported improved unit prices over the first half of the year.
This coupled with increased IPO activity has supported transaction growth of 78 per cent on year to $10.2 billion in the second quarter.
Over the first half volumes soared 50 per cent to $20.8 billion.
In Australia, continued demand from both offshore and domestic institutional investors and pension funds lifted sales to $7.3 billion in the second quarter and $10.5 billion in the first half, up 27 per cent from the first half of last year. Transaction growth in local currency terms was even higher as the Australian dollar depreciated against the US dollar by 13 per cent from the 2013 high.
Megan Walters, head of research for Asia-Pacific capital markets, said capital from around the region continues to show a bias towards core assets.
“However we are seeing some evidence of a shift towards more opportunistic investment,” he |said.
Government policy continues to have both positive and negative effects on deal flow, with stimulatory and cooling measures introduced this year. Investors are developing their views around the Federal Reserve’s intention to taper asset purchases, which some believe may happen as soon as this quarter.
Longer dated bond yields across some Asian markets have moved higher following the announcement, highlighting concerns around the direction of global interest rates, he said.
Stuart Crow, head of Asia-Pacific capital markets, said the company is seeing the results of increased allocations to direct real estate by large global sovereign and pension fund investors.
Large US, Canadian and Middle Eastern investors have returned to the region and, together with active Asian high networth and pension funds, are creating strong demand for assets across the region.
Japan and Australia remain particularly active and, given a robust pipeline for the remainder of the year, will maintain the company’s forecast for transactions to reach $110 billion this whole year, which is slightly below the record of $120 billion in 2007.
Investment activity in other Asia-Pacific markets was mixed as government cooling measures in Singapore and Hong Kong took effect.
While quarter-on-quarter volumes were down in some markets, overall growth over the half year was positive. The company maintains a positive outlook for the rest of the year.
China bounced back strongly from a slower first quarter, up 65 per cent on quarter to $6 billion in the second quarter. On a half yearly basis, investment activity has recovered from the slow second half of last year, up 97 per cent to $9.6 billion in the first half of this year, matching the first half of last year.
Foreign investors, including inter-regional buyers, continue to develop their China strategy with some large deals completed during the quarter serving to push cross-border transactions in the first half of this year up 29 per cent on the first half of last year.
Investor sentiment remained mixed in South Korea as a result of recent economic uncertainty. Transactions in the first half were up 34 per cent on the first half of 2012, but down 48 per cent on the second half of last year, with overall activity predominantly driven by a handful of larger deals.
Indonesia continues to draw interest from foreign investors looking to develop their emerging market strategy, with strong growth potential and solid economic prospects presenting a positive investment case. Much of this investment to date has been dominated by domestic groups as limited stock and opportunities, coupled with strong domestic competition, have made it difficult for foreign buyers to enter the market.