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Asia Q2 RE transactions climb up risk curve

Commercial transactions volumes have rebounded from lows in Q1, with many investors deploying their capital in higher risk-return strategies.

 

Commercial property transactions in the Asia Pacific reached $32 billion in Q2 2014, a healthy recovery from a slow first quarter, and a large portion of that has been allocated to higher risk-return strategies, according to research from global property services firm Jones Lang LaSalle (JLL).

Transaction volumes in Q2 were up 38 percent from Q1, and they were relatively flat year-on-year. However, volumes within Asia’ s markets varied widely, with the traditionally popular and stable countries showing a moderate decline, JLL’s data showed.

Nonetheless, the larger markets of Australia and Japan continued to make up the majority of the region’s transaction volumes, with $7.8 billion and $8.4 billion of deals respectively. However, Japan’s figure was still an 18 percent drop year-on-year, and “if the [A$2.7 billion (€1.9 billion; $2.55 billion)] CPPIB/Dexus acquisition of the Commonwealth Property Office Fund is removed from the equation, the [Australian] market was generally slower than expected.”

China, similarly, reached only $4.9 billion in transaction volumes, a 14 percent drop year-on-year.

Korea, on the other hand, had its transaction volumes reach $2.9 billion, up 26 percent year-on-year. “A string of foreign investor deals in the first half of the year highlights the country’s improving fundamentals and the attractive debt terms on offer with the market being increasingly seen as a good alternative to the crowded traditional core markets,” the report said.

Hong Kong and Singapore, which have faced negative investor sentiment for some time due to falling rents and housing prices, also picked up noticeably. Singapore’s $2.1 billion of investment was up 4 percent year-on-year, while Hong Kong’s $1.8 billion was a 24 percent jump year-on-year. Other markets gaining traction include India and Indonesia, according to JLL.

Megan Walters, head of Research for Asia Pacific capital markets at JLL, also pointed to the kind of deals being done as evidence of investors’ greater appetite for risk in Asian real estate. Specifically, development sites and hotels took a bigger share of the Australian market, and China Tier 2 and Tier 3 cities accounted for a larger portion of China’s deal numbers, she said.

“Given the pricing differentials and competitive nature of core markets, we are seeing more and more investors moving up the risk curve, in terms of asset quality and market selection, and considering non-core investments,” Walters said.