APAC real estate investment volumes hit record

January 29, 2020

Investment in Asia Pacific’s commercial real estate market hit a record US$169 billion in 2019, driven by activity in core markets.

The region’s performance comes as global commercial real estate investment reached an all-time high of US$800 billion in 2019, as investors continued to seek out the solid returns and relative stability of the asset class.

“Real estate has continued to draw ever more interest from investors,” says Sean Coghlan, Head of Global Capital Markets Research at JLL. “Global investment is expected to stay elevated throughout 2020 as allocations to real estate from institutional investors continue to rise and, despite valuations and significant competition, the sector remains attractive relative to other major asset classes.” 

The region’s full year record is despite a slower fourth quarter that saw investment fall by 4 percent relative to the same period in 2018. Nevertheless, a strong start to the year boosted full-year volumes up 6 percent on 2018.

“Asia Pacific will attract a large share of global capital flows as the growth of economies across Asia Pacific continue to outperform global benchmarks, says Tim Graham, Executive Director Head of Capital Strategies, JLL Asia Pacific.

The record-breaking investment was driven by activity in the region’s core markets of China, Japan, Singapore and South Korea. Singapore had a particularly strong year, up 65 percent on a slow 2018.

More complex deals

Demand for real estate continues unabated.

With bond yields depressed and interest rates at historic lows, investors are seeking higher return assets like real estate.

Institutional allocations to real estate globally increased for the 6th year in a row in 2019, while a recent ANREV survey found that 77.5 percent of institutional investors plan to boost their allocation to APAC’s property assets in 2020.

But as the real estate cycle extends into its tenth year, investors are becoming increasingly cautious while facing the challenge of a near-record amount of capital targeting real estate sitting in funds across the world.

As a result, global investors are looking further afield in the hunt for yield, says Graham.

“Institutional real estate investors remain under allocated outside their domestic markets – portfolio rebalancing and diversification will continue to be a major driver of cross border investment.”

Asia Pacific’s share of cross-border deals rose from 14.1 percent in 2009 to 34.2 percent in 2019—a 10-year high. Buyers from the region transacted some US$54 billion worth of cross-border deals by 2019, up from US$10 billion in 2009.

The competitive environment is also encouraging more complex transactions in the market – such as secondaries, re-capitalisations and joint ventures – as investors seek to minimise risks and access product through new strategies.

As competition increased, there will be greater flexibility in deal structuring, particularly in Asia Pacific says Graham.

“The increasing sophistication of Asia Pacific real estate capital markets business means there is an increasing range of options for investors across direct, indirect and debt strategies, so naturally we expect more creative transactions as investors move between different strategies.”

With strong competition and larger deal sizes, joint venture deals are becoming more popular across the region as investors look for ways to access opportunities and diversify risk, says Graham.

“Local knowledge and specialist skills have always been essential for success in real estate, but they have become even more crucial as the investment community seek yield and value in an increasingly global market.”