Investors increasingly keen to hold quality assets as a hedge against macro uncertainty, with premium office space especially coveted across the region.
- Commercial and industrial segments drive performance across major Asia Pacific markets
- China’s domestic investors drive deal-making in the office segment
- Foreign buyers continue to be drawn to premium-grade offices in key Australian cities
- Investors in Singapore pivot towards recession-resistant assets
- Cheaper yen and interest-rate advantages boost foreign investor interest in Japan
- Office tower in Seoul’s in-demand office market sells for record-breaking unit price
Hong Kong, 29 July 2022 – Leading diversified professional services and investment management firm Colliers (NASDAQ and TSX: CIGI) today released its Asia Pacific Market Snapshot | Q2 2022 report, which shows that major Asia Pacific real estate markets witnessed healthy transaction volumes, and are set to grow cautiously in the upcoming quarters as a dismantling of travel restrictions aids an influx of cross-border funds and offsets various macroeconomic challenges.
In Australia’s major cities, over USD2.3 billion worth of deals were finalised, largely funded by overseas investors. In China, lively domestic demand for office assets accounted for the bulk of the nearly RMB32 billion (USD4.7 billion) worth of transactions. In Korea’s capital, an office building fetched a record high unit sale price while India’s residential segment witnessed record sales. Hong Kong’s real estate market began a recovery after the latest round of social distancing restrictions were relaxed while the market in Singapore sustained the momentum of previous quarters, with investment volumes reaching nearly 62.4% of last year’s total.
The report, which examines the previous quarter’s performance of property markets in 17 Asia Pacific countries and territories, also provides forecasts for the current and upcoming quarters.
“Despite concerns such as rising interest rates and geopolitical uncertainty, major deals struck across Asia Pacific markets in the commercial segment suggest investors are opting to carefully consider the fundamentals of each market and take the long-term view,” said John Howald, Executive Director and Head of International Capital, Capital Markets & Investment Services | Asia Pacific at Colliers. “As key markets around the region continue to relax travel restrictions it will further encourage cross-border investments, albeit at a slower pace as investors remain circumspect in light of the macroeconomic challenges.”
John Marasco, Managing Director, Capital Markets & Investment Services | Australia and New Zealand at Colliers, noted: “While the current economic environment will prompt a temporary lull in activity as market participants adjust to the new conditions, we should see a rebound once the capital raised in record deals over the past two quarters begins to be deployed.
“We expect investors to continue to be drawn to the demonstrated ability of key Australian markets to withstand economic headwinds and offer long-term growth potential. In New Zealand, premium assets will be in demand as caution in the face of rising inflation renews the focus on quality.”
Investors flock to premium-grade properties in Australia, New Zealand
Challenging market conditions did not deter foreign investors drawn to office assets in Australia’s major cities, and Colliers expects Sydney to see an uptick in deal-making, once funds raised during Q4 2021 and Q1 2022 find their way into the market despite rising interest rates tempering investment flows.
In Melbourne, which saw the closure of deals worth nearly USD1.89 billion, investors will continue to be attracted to the city’s strong fundamentals. In New Zealand, prime assets will remain coveted investments as higher interest rates aimed at tackling inflation exert pressure on yields and capital growth.
Domestic investors focus on office assets in key Chinese markets
The country’s major markets witnessed transactions worth a combined RMB32 billion (USD4.7 billion), driven mainly by domestic investors and their interest in the office segment. Beijing recorded four transactions worth nearly RMB9.68 billion (USD1.45 billion). Shanghai recorded eight transactions worth RMB8.5 billion (USD1.27 billion), with business park assets accounting for nearly one-fourth of the total transaction value. Guangzhou saw five transactions worth nearly RMB10.52 billion (USD1.57 billion) while Shenzhen saw the completion of three transactions worth a combined value of RMB2.90 billion (USD434 million). In the western cities of Chengdu and Xi’an, the office sector remained in focus although no transactions were recorded.
Colliers anticipates that the office sector will continue to hold the interest of end users as well as institutional investors while the rise of the China REIT (C-REIT) market and policy changes enhance the appeal of new economy assets.
Transactions pick up in Hong Kong as outlook improves
Commercial property transaction volumes rose 52% over the previous quarter, albeit from a low base, in line with improving sentiment as social distancing measures were lifted in late April. Although investor caution has grown with interest rate hikes in the US, Colliers expects sentiment to improve in the second half of 2022 as health measures are further relaxed and funds and real estate firms fuel investments.
Singapore market sees robust momentum
Despite a quarterly decline in investment volumes in Q2, Singapore’s property market maintained its momentum, bringing year-to-date investments to 62.4% of the total volume seen in 2021. Government land sales, collective sales and office sales fueled the market, and point to a healthy outlook for the remainder of 2022 even as geopolitical and macroeconomic challenges mean investors will shift their attention towards recession-resistant assets such as premium office, logistics and retail properties.
Seoul’s office market sees record-breaking transaction
Office assets in Seoul’s sought-after Gangnam Business District (GBD) once again dominated, helping drive investment volumes to KRW3.4 trillion (USD2.8 billion). The market also saw the sale of A Plus Asset Tower racking up a record unit price of KRW47 million (USD36,560) per pyeong (3.3 sq m).
Other notable sales in the GBD involved the Hyongji, the Yeoksam-dong 718 and the Apro Square buildings. Core office unit prices per pyeong have been rising due to strong demand for a limited supply of assets. As this trend continues into the next quarter, Colliers anticipates more major deals to close by year-end.
Japanese cities continue to draw overseas investors
Colliers expects cross-border investments to accelerate throughout the rest of 2022. Major deals closed not only in Tokyo, but also in other major centres like Yokohama, which received investments from Morgan Stanley and Lendlease.
Multi-property residential investments also flourished with M&G Investments committing JPY49.2 billion (USD378 million) to 30 properties, while Hong Kong-based Gaw Capital acquired a portfolio spanning major cities. J-REITS were also active with Japan Real Estate Investment selling Harumi Center Building for JPY24.3 billion (USD187 million).
Download Colliers' Asia Pacific Market Snapshot | Q2 2022 report here.