Aided by a record high second-quarter volume of property transactions in China, real estate investments in the Asia-Pacific rose significantly in the first half of this year, in spite of the still-raging COVID-19 pandemic, a report stated.
Investment in commercial real estate in the Asia-Pacific reached $83.5 billion in the first half, up 39 percent year-on-year, according to JLL's Asia-Pacific Capital Tracker.
China, Australia and South Korea contributed 69 percent of the total volume of investment, while activities in Japan were weaker due to disruptions caused by COVID-19.
In the second quarter, transactions in China alone were up 123 percent year-on-year to 97.4 billion yuan ($15.1 billion), the third-highest volume of quarterly investment in history.
"Though traditional sectors like office and retail contribute more than half of the total transactions, some investors have exited traditional sectors and made investments in alternative assets, such as data centers and industrial parks, which is a new trend in the market," said Pang Shudong, head of capital markets with JLL China.
In Shanghai, 15 transactions generated 13.4 billion yuan in the second quarter, down 21 percent year-on-year. The figure could be closer to 42.3 billion yuan if the estimated consideration of assets from portfolio transactions is included, said Savills China research.
Several big-ticket portfolio transactions were announced at the end of June, including Brookfield's purchase of a portfolio of five retail properties from Macquarie for 8.9 billion yuan and Ping An Insurance's purchase of partial stakes in six Raffles City developments for 33 billion yuan. All the deals include one or more core or core-plus assets in Shanghai.
Institutional buyer interest is rising as they seek to capitalize on the attractive pricing environment, access to sizable portfolios and the recovery of market fundamentals, said James Macdonald, head and senior director of Savills China research.
Increased investment in sectors like logistics, industrial, office space and retail indicates an ongoing recovery of the region's capital markets. Volume in the first six months was down 6 percent from pre-COVID-19 levels for the same period of 2019, said JLL's report.
JLL's analysis of capital flows in the second quarter revealed that office, logistics and industrial, and retail investments made up 31 percent, 30 percent and 30 percent of the total, respectively.
"Real estate investment in the Asia-Pacific region is clearly back as investors reaffirmed their positive outlook, ensuring a sizable upswing in year-on-year investment volumes in the first half. We expect further activities in the second half, as investors will look to portfolio deals, corporate sales and lease-backs, and seek more diversification in sectors like logistics, industrial, life sciences and multifamily," said Stuart Crow, CEO of capital markets with JLL Asia-Pacific.
Logistics and industrial investments across the region surged by 215 percent year-on-year in the second quarter to $15 billion. This was supported by favorable demand dynamics driven by e-commerce expansion regionally, relative yield spreads and investors' desire to diversify into more resilient asset classes, the JLL report said.
At the same time, demand for offices led to $15.5 billion in investment. Office rents turned the corner in Singapore and Shanghai.
A growing number of corporates plan to extend their Asia-Pacific office footprint in the long term while adopting strategies featuring greater flexibility and new hybrid working models, according to the findings of CBRE's 2021 Asia-Pacific Future of Office Survey.
While the average office utilization rate in Asia-Pacific slightly improved to 49 percent in May, the pace of the return to the office varied across the region and is likely to fluctuate despite the economic recovery.
China markets had the highest office utilization as of May. In contrast, office utilization in Southeast Asia and India had deteriorated since the previous survey due to the reintroduction of restrictions on office capacity, the survey said.
About 50 percent of the respondents signaled their intention to increase the size of their real estate portfolios over the next three years, a substantial increase from just 23 percent in October 2020, it added.