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Commercial Real Estate Investment set to grow in Asia
JLL predicts 2015 transaction volumes will exceed 2014 levels as liquidity conditions improve with an estimated USD200 billion of capital available for investment
Direct commercial real estate investment across Asia Pacific in 2015 is expected to exceed 2014 levels, according to the latest figures from JLL. While transaction volumes in Q3 2014 were up just 1 percent on the same period last year, at USD30.3 billion, JLL has identified over USD200 billion worth of capital available for investment in the Asia Pacific real estate market in 2015.
Activity is expected to gather pace throughout the final quarter of 2014, with year-end volumes set to reach USD120 billion. Volumes for the first three quarters of 2014 are down 5 percent on the same period in 2013 – reaching a total of USD85.2 billion.
Stuart Crow, Head of Asia Pacific Capital Markets, JLL, said:
“There are a considerable number of private equity funds approaching maturity across Asia Pacific, however, the volumes of capital available in the market will easily absorb these disposals. Given the level of capital being allocated to real estate in Asia Pacific, demand continues to outpace the amount of assets available and the biggest challenge facing the market is a shortage of supply of investable product.”
He continued: “Private equity groups alone have over USD30 billion in uncalled capital ready to be deployed across Asia Pacific so we expect these groups to be active as both buyers and sellers. REITs also continue to sit below their target gearing levels, and teamed with fresh IPOs and POs, these listed groups will also be actively seeking assets.”
Dr Megan Walters, Head of Research, Asia Pacific Capital Markets, JLL said:
“Despite some investors moving up the risk curve, core assets will remain in favour amongst sovereign wealth and pension funds. We estimate that the potential level of capital coming from sources such as private equity funds, pension funds, REITs, insurers, HNWs and developers in 2015 accumulates to around USD200-250 million – that’s almost twice as much as the estimated USD 130 billion total transaction prediction for the year.
She continued: “With the Federal Reserve likely to end its quantitative easing (QE) program soon, investors will be more focused on their capital management and asset selection strategies. Investors are looking at ways to offset potential interest rate rise risk by actively managing their investments to improve operating income or boost disposal proceeds.”
Country focus
- Transaction volumes in Australia in Q3 2014 reached USD6.9 billion, up 40 percent from the same time last year. Domestic groups, particularly REITs and wholesale funds have been very active. Partnering remains a key trend and some foreign investors have deployed capital through joint ventures with a domestic manager. Core yields continue to tighten, with high quality assets now trading at sub 6 percent, with secondary grade markets also experiencing some compression.
- Investment activity in Japan remains strong, however volumes have eased slightly during the quarter, down 7 percent y-o-y to USD8.1 billion. Investors continue to bid aggressively as a large number of assets come to the market. Corporate expansion continues to outpace supply and the rental growth outlook is easing concerns around entry pricing. Investment activity will recover in the final quarter with a large pipeline of assets in the advanced stages of negotiation.
- Sentiment continues change in China with transaction volumes in the quarter down by 43 percent compared to 3Q 2013 to USD 4.0 billion. The demand for commercial assets in China remains strong and once the wider economy stabilises, investment activity will improve at a rapid pace.
- Investment activity in Singapore improved on last quarter to USD3.3 billion but remains down 21 percent from the same time last year, supported by a SGD1.25 billion (USD1 billion) transaction. Excluding this deal, the market remained quiet due to a lack of available product. Market activity is likely to improve in 2015 as investors look to crystallise profits following recent price growth.
- Transaction volumes in Hong Kong are stabilising, but remain well below the long-term average. Investment volumes during 3Q 2014 reached US 2.0 billion, up 163 percent on the same time last year. Year to date, volumes in Hong Kong are down 12.6 percent.
- Investment activity in South Korea continues to improve. Transaction volumes reached USD2.4 billion, up 31 percent on the same quarter last year. Volumes are supported by a number of sale and leaseback deals in both office buildings and shopping centres as corporates look to recycle capital.
- The macro environment is improving in India and interest in the real estate market is up. The recent government legislation allowing the creation of REITs will improve market transparency, liquidity and access to capital.
- Elsewhere, volumes have improved in Thailand following stabilisation after a prolonged political crises and the military coup. In Malaysia, more large assets are coming into the market and investment activity is expected to increase in 2015. In Indonesia, investment activity remains quiet as investors show concern around the newly elected government’s ability to implement reforms..
About JLL
JLL (NYSE: JLL) is a professional services firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of USD4 billion, JLL has more than 200 corporate offices and operates in 75 countries worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 279 million square metres and completed USD99 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has USD48 billion of real estate assets under management.
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