The ongoing recovery of the major Asia Pacific real estate markets are driven by improving business sentiments and demand for office and industrial assets.
- Demand for office and industrial assets supports growth across key Asia Pacific markets
- Foreign capital flowing back to Singapore, leading demand for commercial assets
- REITs behind significant investments in Japan's office, residential and logistics sectors
- Transaction volumes in Seoul’s office market remain high at KRW4.5 trillion (USD3.6 billion)
- China’s major cities see strong demand for office space and business parks
- Australia and New Zealand see demand grow as borders gradually reopen
Singapore | Hong Kong, April TK, 2022 – Leading diversified professional services and investment management firm Colliers (NASDAQ and TSX: CIGI) has today released its Asia Pacific Market Snapshot | Q1 2022 report, which highlights how major Asia Pacific real estate markets continue to build on a recovery led by gains in the office and industrial segments and are looking forward to a pick-up in dealmaking across segments in the upcoming quarters.
In Australia, easing restrictions brought a return to work and travel, spurring deals worth over USD1 billion in Sydney and Melbourne’s office markets. China too saw demand surge for office space, including in business parks, with key cities witnessing the finalisation of deals worth a combined RMB11 billion (USD1.7 billion). In India, the residential market saw sales surpass pre-2020 levels while strong economic fundamentals triggered an influx of foreign capital. In Singapore, policy measures intended to cool the residential market spurred investments in commercial properties. Japan saw active investment led by REITs across multiple segments, including large office and logistics properties as well as industrial and hotel assets. The report, which examines the previous quarter’s performance of property markets in 16 Asia Pacific countries and territories, also provides forecasts for the current and upcoming quarters.
“In Q4 last year we saw a recovery taking root and, in the first quarter of 2022, that recovery really started to gather momentum across the region,” said John Howald, Executive Director and Head of International Capital, Capital Markets & Investment Services | Asia Pacific at Colliers. “While the office and industrial segments have led the way so far in dealmaking activity, improving business sentiment and the growth-focused policies of governments throughout the region should come together to make demand more broad-based and spur transactions across segments.”
John Marasco, Managing Director, Capital Markets & Investment Services | Australia and New Zealand at Colliers, noted: “As travel resumes and people head back to the office in greater numbers, we’re seeing a significant increase in interest from both occupiers and investors for office assets. With institutional investors also looking to expand their portfolios, we expect deal volumes to ramp up rapidly as the year progresses. In New Zealand, high-quality commercial assets will attract the attention of investors, including those from overseas once border restrictions ease in the coming months.”
Demand grows in Australia and New Zealand as restrictions ease
Major Australian cities witnessed heightened demand from both occupiers and investors following the reopening of state and international borders, and the return of workers to offices. Colliers expects Sydney and Melbourne to both see substantial increases in deal volume over the year, especially for premium assets, as companies look to encourage more employees back into the workplace and institutional investors seek to expand their portfolios. In Auckland, demand for retail and office space is being driven by investors looking ahead to the easing of restrictions once Omicron cases subside. Demand for high-quality commercial and industrial properties is also expected to strengthen later in the year when border restrictions could be relaxed, prompting overseas investors to return.
Major Chinese markets witness strong demand for office space
Foreign buyers accounted for almost two thirds of the total transaction value of RMB2.94 billion (USD462 million) in Beijing while occupiers stepped up leasing of large office spaces. In Shanghai, office and business park offices made up 60 percent of the overall transaction value of RMB5.98 billion (USD939 million). In the Pearl River Delta, Shenzhen recorded transactions worth RMB785 million (USD123 million) and Guangzhou recorded one transaction worth nearly RMB300 million (USD47 million). Colliers expects continued strong demand for office space in central business districts (CBD) and business parks across major cities, including Chengdu and Xi’an in the country’s west.
Hong Kong investors turn to hotels, industrial assets
Investment activity in Hong Kong dropped 46 percent QOQ and 6 percent YOY to HKD11.2 billion (USD1.4 billion) in Q1, after investor sentiment was hurt by a surge in Omicron cases, global geopolitical tensions and stock market volatility. At the same time, investors turned to hotel assets due to their potential to generate steady revenue as co-living or quarantine facilities. As restrictions are relaxed and macro headwinds ease, Colliers expects transaction volumes to recover in H2. Hotels will continue to attract institutional investors and industrial properties, including data centres and cold-storage facilities, and will regain the spotlight while local investors will likely continue to be focused on retail assets.
Foreign capital flows back into Singapore
Private funds and family offices snapped up prime locations as demand shifted into the commercial sector in response to government measures introduced in December 2021 to rein in the residential sector. Commercial sales drove transaction volumes, which grew 34.4 percent QOQ to SGD10.6 billion (USD7.8 billion) in Q1, boosted by the sale of the mixed-use Tanglin Shopping Centre to Indonesia’s Royal Golden Eagle for SGD868 million (USD645.6 million) in February. As borders reopen, corporate M&A and cross-border activity will fuel capital growth, and demand will increase for retail and hospitality assets. However, prices and volumes will be capped by rising interest rates and geopolitical tensions.
Fewer deals but higher volumes in Seoul office market
Deal volumes in Seoul’s office market stood at a robust KRW4.5 trillion (USD3.6 billion) following the successful closure of a few deals involving large, premium properties. Rising interest rates and dwindling supply could suppress transaction numbers going forward, but mega deals in the works involving prime assets, such as the Brookfield-owned IFC in Yeouido Business District valued at approximately KRW4 trillion (USD3.2 billion), could keep total volumes high. Office prices will continue to trend upward, mainly in the Gangnam area popular with technology companies.
Japanese REITs drive investment across multiple sectors
Japan’s real estate market saw a number of investments in the office, residential and logistics sectors, driven by strong interest from Japanese REITs (J-REITs). Investments also flowed into the hotel and retail sectors, which stand poised for a sustained recovery in line with an overall improvement in the economic outlook as the country seeks to leave Covid-19 concerns behind. Colliers expects to see an increase in cross-border transactions following the easing of restrictions on business travel to Japan. J-REITs will continue to invest in the office and logistics sectors, and interest from foreign investors is already ramping up – as demonstrated by GIC’s purchase of Seibu Group’s hotels and ancillaries for JPY150 billion (USD1.2 billion) and KKR’s plans to acquire all outstanding shares of Mitsubishi Corporation-UBS Realty for JPY230 billion (USD1.9 billion).