After the seasonally slow start to 2014, transaction volumes in Asia-Pacific's commercial real-estate markets improved in the second quarter to reach about US$32 billion (about Bt1 trillion) - up 38 per cent quarter on quarter, according to the latest fig
While the quarter’s volumes were still relatively flat year on year as a result of the disconnect between vendors and purchasers on pricing, the market has started to regain balance with deal flow expected to make a strong recovery in the second half of the year.
Stuart Crow, head of Asia-Pacific capital markets at JLL, said that over the quarter the company had seen direct investment into commercial real estate in Asia-Pacific improve against the traditionally slower first quarter of the year, predominantly supported by some landmark portfolio deals in the region and larger real estate investment trust privatisation.
As evidence of a strengthening leasing market gathers pace, and pent-up investor demand from private equity groups, the company’s 2014 forecast is that year-end volumes will be in line with the record levels seen last year. It is expecting a very busy second half of the year, he said.
Megan Walters, head of research for Asia-Pacific capital markets at JLL, added that given the pricing differentials and competitive nature of core markets, the company is seeing more and more investors moving up the risk curve, in terms of asset quality and market selection, and considering non-core investments.
The improvements in the region’s occupier markets have supported this trend as under-managed assets present a trading opportunity in a strong rental climate.
Over the second quarter, the region’s debt capital markets experienced a period of stability with less volatility in base rates and only a minor contraction in typical margins for most markets.
New sources of debt and alternative strategies continue to present themselves in various markets and investors are focusing more attention towards their maturity terms and refinancing risk, she said.
Japan continued to deliver a strong deal flow throughout the second quarter despite volumes slowing 18 per cent year on year to $8.4 billion. The slowdown is likely attributed to April’s consumption-tax increase, which had brought forward a number of deals into the previous quarter as well as having a temporary influence on sentiment as investors hold off in an attempt to gauge the impact of the tax rise.
Japan’s investment climate remains positive with a strong pipeline of large deals and growing investor interest. Occupier markets continue to improve in line with the wider economy, which is, in turn, placing upward pressure on rents and encouraging more investment opportunities to market.
After a slow start to the year, transaction volumes in China improved in the second quarter, to reach $4.9 billion, but remained 14 per cent down year on year. Overall, the market appears to have stabilised after concerns earlier in the year over the economic outlook and runaway credit growth, Walters said.
Investor interest is picking up again and liquidity is expected to improve as a number of private equity groups on both the buy-side and sell-side are close to finding a balance on market pricing. Once the market finds this equilibrium, transaction activity is likely to pick up as investors get comfortable on pricing and more opportunities find their way to the market.
The Singapore market also recovered from a slower start to the year to record US$2.1 billion of investment, up 4 per cent year on year, although the market remained down 18 per cent in the first half of the year compared with the same period of last year.
The first half saw the country’s occupier markets recover from the previous year, while limited supply over the next two years has led to a positive rental outlook.
Looking at ways to take advantage of this, investors are considering trading opportunities and, whilst foreign investors have not yet been significantly active, there is increasing interest from offshore groups.