Real Estate

Asia commercial property set for boom in second half

This sector is set for a boom in second half of 2014

Transaction volumes of commercial real estate in the Asia-Pacific region are set to rise dramatically in the second half of this year, analysts at Jones Lang LaSalle said in a note published Wednesday, catching up with record growth seen in 2013.

Volumes jumped 38 percent to $32 billion in the second quarter of this year, on a quarterly basis, although they were still relatively flat compared 2013 levels.

But JLL analysts forecast that deal flow will make a strong recovery in the months ahead, nearing the record volume of $126.8 billion logged in 2013.

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"Over the quarter, we have seen direct investment into commercial real estate in Asia Pacific improve against the traditionally slower first quarter of the year, predominantly supported by some landmark portfolio deals in the region and larger Real Estate Investment Trust (REIT) privatization," said Stuart Crow, head of Asia Pacific capital markets at JLL.

"As evidence of a strengthening leasing market gathers pace, and pent up investor demand from private equity groups, our 2014 forecast is that year-end volumes will be in line with the record levels we saw in 2013. We are expecting a very busy second half of the year," he added.

A single transaction which took place earlier this year – the Canada Pension Plan Investment Board (CPPIB) and Australian office landlord Dexus Property Group's joint acquisition of Australia's Commonwealth Property Office fund – was largely responsible for the pickup seen across the region in the second quarter.

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Apart from Australia, Japan also accounted for a majority of the region's volumes, although the latter saw a drop by 18 percent on an annual basis to $8.4 billion, and will unlikely match its strong performance for the whole of last year, when sales improved by 69 percent.

JLL blamed Japan's slowdown on April's consumption tax increase, which brought forward a number of deals to the first quarter, and encouraged a more tentative approach from investors.

Australian volumes increased 7 percent year on year to $7.8 billion, although without the CPPIB/Dexus acquisition, market activity was slower than expected. Interest in Australia from Chinese investors in particular remained strong, however.

High-rise buildings and real estate advertising in Tianjin, China.
Zhang Peng | LightRocket | Getty Images

Top performers

The best performing markets in the Asia-Pacific were Hong Kong, South Korea and India. Hong Kong's transaction volumes surged to $1.8 billion in the second quarter, a 24 percent year on year increase.

South Korea, which attracted strong foreign investor interest, saw transaction volumes climb an annual 26 percent to $2.9 billion.

"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," said JLL.

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Meanwhile, investment in India is also strong, JLL said, driven by the fresh pro-business government and a stabilized rupee.

Volumes in China improved in the second quarter to $4.9 billion, aided by better sentiment surrounding the economy's growth picture and credit concerns, but remain down 14 percent year on year.

Meanwhile, Singapore recovered from a slow start to the year, climbing to a record $2.1 billion in the quarter, a 4 percent increase from the year before. However, the market was down 18 percent in the first half of the year compared with the equivalent period in 2013.