Asia-Pacific real estate investment volumes dropped significantly in Q1 due to covid-19, with the slowdown expected to continue into the second quarter, according to the latest report by JLL.
The region’s commercial real estate transaction volumes fell by 34 percent year-on-year to $29.5 billion in the first quarter. China, Hong Kong and Singapore were the most affected property markets, with investment volumes in all three plummeting by more than 60 percent. Hong Kong was the hardest-hit, suffering a decline of up to 74 percent as pandemic-related disruption was compounded by “economic concerns arising from ongoing social unrest” in the city.
On the other hand, Japan and South Korea appeared to show more resilience to covid-19, with the latter actually seeing a 32 percent increase in its Q1 investment volumes. JLL explained, however, that the exceptional performance in South Korea “may not fully reflect the real impact” as many of the transactions “were rolled over from last year.”
The outbreak had a negative impact on most property sectors. Retail investment volumes, as expected, took the biggest hit, plunging by 39 percent owing to the lockdowns across different markets. Office transaction volumes dropped by 35 percent.
Although the hospitality sector saw a relatively moderate decline of 22 percent, JLL explained that the sector was “partially aided by select deals finalized in the earlier part of the quarter in Japan and South Korea.”
The industrial and logistics investment market was one bright spot, with activity rising by 9 percent year-on-year.
Regina Lim, executive director, capital markets research, Asia-Pacific at JLL, predicted that transaction activity would continue to be slow in April and May. However, she explained that a “material drop-off” from Q1 2020 levels was unlikely: “Businesses in China are returning to normalcy and several countries in Asia-Pacific were able to manage covid-19 effectively.”
She expects investment activity to “bounce back strongly” in the second half as investors “remain calm and optimistic” in the face of the pandemic.
“Assets with long leases and certainty of income, such as living and office assets, and assets with operation criticality, such as data centers and logistics, will continue to do well,” she said. “Markets with strong domestic liquidity are also expected to weather this situation better.”
However, Lim noted that unlike Asia-Pacific, which was affected by covid-19 earlier than the rest of the world, Europe and US investment volumes only started to wane in March, when the implementation of lockdowns in those regions created significant challenges to executing deals.