(18 February 2019, Singapore) Strong transaction volume for commercial real estate in the first half of 2018 took the full year totals to the second highest on record. Overall transactions of US$159.1 billion in 2018 were just 2% shy of the previous year’s peak, Real Capital Analytics’ Asia Pacific Capital Trends report showed. The chill from China’s weakening economy, however, was spreading across Asia Pacific real estate markets in the latter half of 2018.
2018 was the ‘Year of Industrial’ across the region, with investment capital crowding into flexible industrial and warehousing assets, pushing transactions for this sector to a record US$24.7 billion, some 15% higher than in the preceding 12 months.
Petra Blazkova, RCA’s Senior Director of Analytics for Asia Pacific, said: “While property investment started the year strongly, activity decelerated in the second half, with investors concerned about financial market volatility and the weaker economic outlook. But investors were also looking beyond current economic jitters at longer-term structural change in the markets and the industrial market benefitted. Average industrial yields dropped to around 6.0% in Asia Pacific – the lowest levels that RCA has ever recorded for this property sector.”
Hong Kong Still Tops Ranking Metro in 2018 but Volumes Slump in The Second Half
Thanks to extraordinary investment activity in the first half of the year, Hong Kong remained the biggest metro market in Asia Pacific in 2018. Investment volume for the year totaled a record US$25.7 billion (HK$201.7 billion) – up 32% year-on-year. The impact of global trade tensions, rising interest rates and a slowdown in capital inflows from China, however, became apparent in the second half of the year. Investment activity in the last six months of 2018 comprised just 31% of the year’s total.
Petra Blazkova said: “Hong Kong set numerous records in 2018 including transaction volume reaching a historic high. However, activity fell in the second half of the year because of a smaller number of major deals.”
Asia Pacific Cross-border Deal Volume at 10-year High
Petra Blazkova concluded: “International real estate investors from outside Asia Pacific markets, particularly U.S., Canadian and UK players, appeared unperturbed by the China-led slowdown in the second half and drove 2018 cross-border capital flows into the region 17% higher last year at US$27.0 billion, to the strongest level since 2008.”
U.S. investors were at the vanguard of this advance, boosted by deals such as Goldman Sachs’ share of a joint venture to buy the Link REIT portfolio in Hong Kong, KKR acquiring DAOR E&C’s mixed-use portfolio in Seoul and Blackstone’s purchase of the Indiabulls Centre in Mumbai.
Another cause of accelerating global investment volume in Asia Pacific were UK-based investors. Surpassing even their 2007 peak, their allocation to Asia Pacific in 2018 reached US$2.9 billion – the highest on record. M&G buying a share in Centropolis Tower in Seoul and 80 Ann Street in Brisbane as well as Chelsfield Group’ share in Manulife Centre in Singapore all contributed to the boost in volume.
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