Asia Pacific commercial real estate investments down 30% y-o-y in 1Q2023: JLL

Commercial real estate investment activity in Asia Pacific (Apac) clocked US$27 billion ($36 billion) in 1Q2023, according to data compiled by global real estate consulting firm JLL. This represents a 30% y-o-y drop compared to 1Q2022.

The fall in investment volume follows interest rate headwinds and asset price adjustments, states JLL. “The market continues to be challenging, with many investors reasoning that the tightening of lending standards will provide further uncertainty in the commercial real estate market,” says Stuart Crow, JLL’s CEO for capital markets, Asia Pacific.

Most of the region saw lower volumes, including Singapore, which recorded a 66.8% y-o-y decline to

US$1.9 billion. South Korea saw a 69.5% y-o-y drop to US$2.5 billion, China’s investment volume fell 16.4% y-o-y to US$6.9 billion, while Australia recorded a 25.6% y-o-y fall to just under US$6 billion.

Japan was the only Apac country to see an increase in investment volume, which rose 4.7% y-o-y to US$8.9 billion. “The [Japanese] office sector experienced a considerable volume uptick, propped up by headquarter building disposals from Japanese corporates, and a flurry of acquisitions by J-REITs,” JLL’s report states.

The fall in Apac investment volumes in 1Q2023 was reflected across all sectors. Office market investments fell 26.6% y-o-y to US$12.7 billion in the first quarter, which JLL notes is one of the sector’s softest quarters on record. Similarly, investment volumes in the logistics and industrial sector fell by 24% y-o-y, as US$100 million-plus deals diminished because of a new cycle of price discovery and funding challenges.

In the retail sector, investment volumes totalled US$5.3 billion in 1Q2023, lower than the five-year quarterly average of US$7.5 billion. Apart from Singapore — which saw retail deals such as a 50% stake in Nex sold by Mercatus Co-operative to Frasers Property and Frasers Centrepoint Trust for $652.5 million — large-scale shopping mall trades were absent from the region.

Meanwhile, despite a strong rebound in the hospitality market, hotels saw US$2.4 billion in investments in 1Q2023, down 30% y-o-y. “Ongoing macroeconomic challenges and the current US and European banking crisis have strongly impacted hotel transaction activity in Apac in 1Q2023,” says JLL.

However, JLL’s Crow remains optimistic about the Apac commercial real estate market. “Asia Pacific remains more insulated, and we’re confident that liquidity risk is well contained in the region. The resumption of activity is a matter of when and not if.”

Pamela Ambler, head of investor intelligence for Apac at JLL, adds that she does not anticipate price levels in Apac to correct materially within the current global price adjustment cycle. “We expect the level of repricing to peak in the second quarter of 2023 and then moderate in the latter half of this year, as borrowing costs are expected to come off, with potential rate cuts going forward.”

JLL notes that over the past year, Apac price adjustments have lagged behind places like the US, where asset prices are down 20% to 40% compared to early 2022 values, and Europe, which has primarily seen cap rate expansion of 100 to 150 basis points. “Pricing dynamics are more nuanced across Asia, with softening most evident in Australia (15% to 20%) and South Korea (10% to 15%),” it adds. — Compiled by