Investment in Asia-Pacific commercial real estate decreased by 17% year-on-year to US$70.9 billion in the first half of 2022, as a tightening rate cycle and inflationary concerns began affecting transaction activity, a new report shows.
The office sector remained the region’s most liquid asset class, drawing US$30.6 billion in investments during the period, down a modest 8% year-on-year from last year’s high base, according to data and analysis published in the JLL Q2 2022 Capital Tracker.
Industrial and logistics investments (US$14.6 billion) dropped by 37% from record volumes in 2021, while deployments into retail assets fell 31% y-o-y to US$14.0 billion. Investments into alternative assets (US$1.4 billion), such as data centres, declined 12% y-o-y to US$1.4 billion.
Real estate transaction volumes
“Investment volumes in the first half declined moderately from the high base set in 2021 as external factors emerged, resulting in investors adjusting capital deployment strategies to align with a more aggressive rate tightening cycle," says Stuart Crow, CEO, capital markets, Asia-Pacific, at JLL. “Encouragingly, dry powder levels remain high, and we are seeing that the appetite for real assets remains strong. Clear opportunities exist and we’re advising clients to expect a new price discovery phase to remain a dominant theme for the remainder of 2022, as macroeconomic headwinds and ongoing inflationary pressures influence decisions.”
Asia-Pacific-dedicated fund raising maintained its momentum despite falls in global activity. In a sign of the longer-term positivity in the region’s real estate sector, development-focused funds in logistics, living, and data centres in India and Southeast Asia continue to secure financial commitments from global and regional institutional investors.
The impact of pandemic-related lockdowns weighed on China in the first half with investments falling by 39% y-o-y to US$14.1 billion. Japan volumes dropped 33% to US$11.5 billion due to a lack of logistics transactions. Activity in Australia declined 27% y-o-y to end the half at US$9.8 billion.
South Korea (US$15.3 billion) emerged as the region’s largest market by volume in the first half, remaining flat year-on-year, buoyed by office transactions including SK U-Tower and A+ Asset Tower in Seoul.
Singapore reported an 81% y-o-y growth at US$9.3 billion, supported by large-ticket office and mixed-use transactions including Income@Raffles, while Hong Kong was up 18% at US$5.0 billion, driven by a number of en-bloc industrial sales.
Sustainability frameworks were high on the agenda for investment committees, influencing acquisition decisions, according to the report. JLL expects investors to deploy more capital into value-add strategies by refurbishing old offices into green buildings as occupiers increasingly choose higher-quality space post-pandemic.
“The market adjusted to new realities over the first half, which was reflected in more muted investment activity,” says Pamela Ambler, head of investor intelligence and strategy, capital markets, Asia-Pacific, at JLL. “Capital remains committed to the Asia-Pacific real estate market but deployments will be more selective as investors play the long game and price in financial market tightening to any investments for the foreseeable future.”