Asia’s commercial property deals set for record year
Commercial real-estate investment in the Asia-Pacific region appears set for a record this year, finally topping pre-financial crisis levels and shrugging off recent stock and currency market volatility.
For the first three quarters of the year, the region's commercial real-estate transactions totaled $89.6 billion, up 25 percent from a year earlier, Jones Lang LaSalle said, adding transactions exceeded its expectations.
The segment is seeing "unrelenting demand," said Stuart Crow, head of Asia-Pacific capital markets. "We are seeing increased activity from Asian pension and sovereign funds, together with new sources of global capital that are allocating to Asian real estate for the first time."
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The real-estate services company raised its year-end forecast to $120 billion, from $110 billion, adding this would put 2013 on par with 2007, the strongest year ever by transaction volume.
"The markets are a little more disciplined than they were in 2007," Crow told CNBC. "There is a lot more equity in the system now than there was back in 2007, when leverage was being used a lot more. The market generally is more insulated."
"The majority is looking for yield-based investments, rather than speculative ones," he said.
He noted Asia's commercial property markets are seeing a structural change, becoming more liquid, sophisticated and institutional.
Rather than denting enthusiasm in the third quarter, the recent emerging market equity and currency volatility actually spurred some additional investment, he noted. "People saw it as a good entry point," especially in Japan and Australia as their currencies fell, he said.
He believes Asia-Pacific commercial property is still at a good entry point, as prices haven't risen too much despite higher volumes, while rentals remain toward the bottom of the cycle.
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With office occupancy demand growth still benign in some markets, interest is shifting more toward consumer property plays, he noted. Investors are seeking to play tourism via hotel investments and expectations of rising demand via retail shopping and logistics centers, he said.
Australia, Japan and China led regional demand, accounting for 69 percent of the region's completed transactions so far this year, the company said.
Japan's third-quarter deals climbed 139 percent from the year-earlier period, while year-to-date transactions are up 69 percent at $29.5 billion, amid interest from both domestic and offshore investors.
Crow noted the yields in Japan's commercial property sector are now down significantly and he expects there may be some property price correction ahead.
China's activity rose 167 percent in the third quarter, while year-to-date, it is up 34 percent at $16.6 billion; offshore investors accounted for over half of the transactions in the third quarter.
Australia's activity rose 25 percent year-to-date to $4.9 billion, after third-quarter investments rose 17 percent from a year-earlier, although they fell from the second quarter.
"Given the robust pipeline and continued strength of investor sentiment, we remain positive on the outlook for the remainder of the year," said Dr. Megan Walters, head of research for Asia Pacific capital markets at Jones Lang LaSalle.
But she added, increases in the yields of longer-dated bonds across the region amid expectations the Federal Reserve may taper its asset purchases are a concern.
European and U.S. commercial property markets have also seen increased investment so far this year, Crow noted, rising around 20 percent each. But he noted much of the investment was from large Asia-based investors.
"Even when it's not about Asia, it is about Asia," he said.
— By CNBC's Leslie Shaffer. Follow her on Twitter: @LeslieShaffer1