Direct commercial real estate investment globally reached a milestone in the first quarter of 2013, with the highest Q1 global transaction volume recorded since 2008, according to property management and investment company Jones Lang LaSalle’s latest Global Capital Flows report. Volumes came in at USD 105 billion for Q1 2013, with all three regions witnessing growth year on year, as the weight of money chasing real estate has increased significantly.
USD 27 billion was invested directly in Asia Pacific commercial real estate in Q1 2013, which is on par with Q4 of last year, but up 26 percent on the first quarter of 2012. Asia Pacific was the only region not to see a decline in volumes transacted compared to Q4 of 2012. An increased proportion of transaction volumes in the Asia Pacific region in the first quarter was made up of domestic deals (USD 20 billion), with cross border investment (USD 7 billion) down 24 percent year on year and down 11 percent quarter on quarter.
Commercial real estate investment in Japan rose 38 percent in the first quarter of 2013.
Stuart Crow, head of Asia Pacific capital markets at Jones Lang LaSalle said: “Continued quantitative easing globally is increasing liquidity and reducing the cost of debt in Asia Pacific, which is making real estate assets more accessible to investors within Asia Pacific.”
He continued: “We maintain our expectation of an increase in transaction volumes in Asia Pacific to USD 110 billion for 2013, which will be about 12 percent up on last year, and we think that Japan is going to be the ‘one to watch’ this year. We expect a lift in investment activity in the country, as positive signs are emerging following announcements about stimulus measures targeted at reflating the Japanese economy.”
Asia Pacific on the global stage
Investors from Asia Pacific maintained their preference for European investment during the first quarter, particularly the biggest, most liquid cities of Paris and London, concentrating on office and hotel assets. The USD 2.6 billion spent outside the region is 45 percent higher than this time last year.
Alistair Meadows, director, International Capital Group Asia Pacific, Jones Lang LaSalle commented: “New capital continues to emerge from Asia Pacific that is aggressively targeting global cities, especially London and New York. The sources of this capital are increasingly Chinese sovereign wealth funds (SWFs) and insurance companies as well as pension funds from Korea and Malaysia. Core office assets in gateway cities remain the favoured targets, making up 50 percent of global cross-border activity.”
Four Asia Pacific countries featured in the ten largest markets globally in Q1 this year, Japan, China, Hong Kong and Australia. Domestic investors accounted for the lion’s share of investment in all except China, reflecting a trend seen across the region in the past quarter, as investment from investors within the region has increased.
Japan stood out at USD 10.6 billion, up 32 percent year on year and up 38 percent quarter on quarter, reflecting a broad improvement in sentiment across the economy, with consumer confidence at a five-year high and a weaker yen that will help to support the large export market.
Hong Kong continued to see increased levels of transactions; USD 3.3 billion in Q1 is on par with Q4 2012 and up 68 percent year on year. However the doubling in stamp duty in late February may result in a slowing of transaction volumes over the next couple of quarters as buyers and sellers adjust expectations in the light of the additional tax.
China, with investment volumes of USD 3.6 billion (up 62 percent quarter on quarter and flat year on year), was boosted by a number of cross-border deals pushing the share of cross border transactions to around 65 percent for 1Q 2013.
In Australia volumes were USD 3.2 billion, down 18% quarter on quarter but up 23 percent year on year, with cross border deals down around a third both quarter on quarter and year on year with local buyers active. Yields are compressing due to the weight of capital.
Five Asia Pacific cities made the top ten most active cities globally, with Tokyo maintaining its number three spot (USD 5.9 billion), Hong Kong ranked fifth (USD 3.3 billion), Shanghai ranked sixth (USD 2.4 billion) and Singapore ranked ninth (USD 1.9 billion).
Four of the ten top ten purchasers globally by source of capital were from the Asia Pacific region; whilst China’s Q1 2013 spend remained on par with Q1 of last year, spending by Australia and Japan doubled and Hong Kong spending globally was up by over 200% compared to this time last year.
Looking at cross-border purchasing countries (investors buying real estate outside of their home market), Hong Kong, Singapore and China featured in the top ten. Singapore was more subdued than the first quarter a year ago, but institutional investors have on-going spending requirements and have increased their allocation to real estate so are expected to become more active through 2013.
There was a substantial increase in REIT (Real Estate Investment Trust) purchasing activity as the impact of looser monetary policies in Japan came into effect. This combined with the REIT sector in the US continuing to acquire assets and confidence slowly returning to the smaller European REIT sector pushed REITs to be the most active investor group this quarter – USD 7.7 billion compared to USD 0.7 billion a year ago.