After a record year, transactions in Asia-Pacific commercial-real-estate markets slowed 15 per cent year on year to US$23.1 billion (Bt747 billion) in the first quarter of 2014, according to Jones Lang LaSalle.
Property types in JLL’s “Global Capital Flows” report include hotel, office, industrial and retail. All figures are preliminary.
Attributing the slowdown to government cooling measures and various seasonal factors, JLL maintains its forecast that full-year transactions will surpass those last year because of the continued allocation of capital to real estate and improving leasing demand.
Stuart Crow, head of Asia-Pacific capital markets, said yesterday that transactions in the region were traditionally lower in the first quarter as it experiences the effects of both the Western and Chinese New Year holidays.
“While investment has been slightly muted by concerns around growth in emerging markets and renewed economic uncertainty in China, we expect transaction volumes to pick up throughout the year as a wave of closed-end funds mature and deals that are already in the pipeline come to market.
“Coupled with unrelenting demand for commercial real estate, this leads us to maintain our forecast that investment in commercial real estate in the region will outstrip that of 2013,” he said.
Outperforming the rest of the region, transactions in the larger markets of Japan and Australia grew by 15 and 31 per cent respectively, with Japan accounting for an impressive 53 per cent or $12.2 billion of direct investment into the region’s commercial-real-estate markets last year.
What is traditionally a strong quarter for Japan’s investment markets was buoyed further by the increase in the country’s consumption tax on April 1, which meant many investors deliberately brought deals forward.
Megan Walters, head of research for Asia-Pacific capital markets, said that during last quarter, tapering of the United States’ quantitative-easing policy started, and the subsequent cuts to the programme coupled with a small increase in interest rates in core markets have forced investors to focus more on their capital management strategies and reconsider their return requirements.
“This led to a periodic stand-off between landlords and investors and, as a result, price growth has slowed for the time being. However, we fully expect the market to find a balance, particularly as the disconnect between leasing and capital markets that we saw throughout 2013 has started to close, following an improvement in the corporate sector, and perform well for the remainder of 2014,” she said.
Portfolio transactions and foreign investors played a prominent role in Japan’s regional outperformance last quarter with some large mega-deals boosting overall volumes. While the rise in the consumption tax could slow investor appetite over the short term, the general trend in Japan remains positive in both liquidity and transactions, with the market set to experience further strong growth this year.
Australia’s 31-per-cent year-on-year growth in transactions was in line with expectations with foreign investors accounting for 32 per cent of all deals. It is unlikely that overall investment activity this year will match that of last year, as both demand and supply slow.
Direct investment in mainland China’s commercial real estate slowed slightly last quarter, down 18 per cent year on year to $3.0 billion.
Last quarter, transactions in Singapore declined by 42 per cent to $1.2 billion. However, with some large en-bloc assets coming to the market, a healthier rental market and improved investor sentiment, volumes are set to pick up during the rest of the year.
Investment activity in Hong Kong remained lacklustre, reaching $1.0 billion last quarter, a year-on-year decline of 69 per cent. There is potential for improvement towards the end of the year if mainland investors look to Hong Kong assets in search of more favourable debt conditions.
The global uncertainty over emerging-market growth and the subsequent capital outflow was reflected in Indonesian and Indian markets last quarter, although Indonesia’s real-estate markets continue to see growth.
Policy-makers in both countries have reacted by raising short-term interest rates and deploying foreign reserves to protect currency valuations and curb inflation.