Asia Pacific Witnesses Rebound in Commercial Real Estate Investment

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“AsiaPac CRE: 3% YoY Surge to US$31.6B, China Leads, Singapore Stands Out, JLL Optimistic for 2024.”

KUALA LUMPUR, 20th Feb 2024 – The Asia Pacific region experienced a notable uptick in commercial real estate investment during the fourth quarter of 2023, marking a 3% year-on-year increase to reach US$31.6 billion (RM151.1 billion). This positive shift comes after seven consecutive quarters of declining investment volumes, as revealed by data and analysis from JLL. Despite the overall challenges that led to a 17% year-on-year decline in investment across the region for the entire year, the recent rebound in 4Q2023 offers a promising outlook for the commercial real estate sector.

China has once again led the resurgence of investment in the Asia Pacific region for the second consecutive quarter, marking a significant 50% year-on-year increase in volume, reaching US$11.1 billion, according to a global real estate consulting firm.

This growth was particularly notable in sectors such as logistics, which saw a modest decline of -5% to US$6.5 billion, and living, experiencing a substantial uptick of 24% to US$1.5 billion, especially within the Chinese market.

Contrastingly, investments in the office sector witnessed a decline of 13% year-on-year, amounting to US$13.7 billion. This contraction is attributed to uncertainties related to interest rate movements, the extent of re-pricing, and occupancy concerns.

While China dominated as the most active market in the fourth quarter, Singapore faced a sharp decline in investment volume, plummeting by 29% year-on-year to US$1.8 billion. Despite the overall decline of cross-border investments in the Asia Pacific by 64% year-on-year to US$3 billion in the fourth quarter of 2023, Singapore emerged as the most active cross-border investor. The nation engaged in substantial acquisitions in hotels and logistics across the region, contributing to 36% of the total quarterly investment volume, as highlighted by JLL.

Yulia Nikulicheva, the Head of Research & Consultancy at JLL Malaysia, observed that Malaysian investors initially approached real estate cautiously at the beginning of the year. However, she noted a significant uptick in investment activity towards the end of the year, surpassing both the volumes and number of transactions compared to the previous year.

Due to a limited availability of existing assets for sale, a substantial majority of transactions (57% in overall volume) involved the sale of land for future development. Additionally, logistics and industrial assets constituted nearly a quarter of the total transaction value, with offices ranking third at just 8%. In more traditional market segments such as offices and retail, only a few transactions were noted, primarily involving Grade B assets. Notably, a significant transaction towards the end of the year was the sale of Oxley Office Tower to Alliance Bank, as highlighted by Nikulicheva.

Australia and Hong Kong both experienced year-on-year (YoY) improvements in investment volume, with increases of 14% (reaching US$4.3 billion) and 6% (reaching US$2.1 billion) respectively. The boost in Australia’s investment volumes in the fourth quarter was primarily attributed to the improved performance of the retail sector. In contrast, Hong Kong’s quarterly performance was strengthened by two significant office acquisitions intended for occupation.

However, Japan witnessed a YoY regression in investment volumes, declining to US$4.4 billion, representing a 53% dip. This decline was influenced by concerns regarding the Bank of Japan’s decision to cease its negative interest rate policy, impacting investor interest in office assets.

Despite a pronounced domestic capital bias in South Korea, the market recorded a US$4.2 billion investment volume in the fourth quarter of 2023, experiencing a 7% YoY dip. Large office transactions contributed to this volume, while the leasing market maintained stability with low vacancy rates and positive rental growth. However, cautious investor sentiment led to a slowdown in investment activities.

“Despite the elevated cost of debt, investors in the Asia Pacific region remain cautious. The possibility of interest rate cuts in 2024 could potentially reverse existing trends, leading to increased diversification across sectors. Stuart Crow, CEO of Asia Pacific Capital Markets at JLL, highlighted the shift toward sectors like logistics, industrial, and living, which have garnered high investor confidence.

The conclusion of 2023 saw a reduction in dry powder levels, indicating that investors actively deployed capital into the Asia Pacific commercial real estate market, demonstrating a willingness to take a long-term view amid prevailing market challenges. As 2024 unfolds, challenges persist, with interest rate movements playing a decisive role in investment activity, and selling pressure intensifying in some of the region’s major markets, according to Pamela Ambler, Head of Investor Intelligence, Asia Pacific, at JLL.

Despite these challenges, JLL maintains an optimistic outlook for market activity, aligning with positive macroeconomic expectations. There is a notable interest from both international and domestic investors, carefully assessing opportunities across all sectors. Looking ahead to the first quarter of 2024, JLL anticipates the potential occurrence of significant transactions in Malaysia.”

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