COMMERCIAL real estate volumes across Asia Pacific tumbled due to the coronavirus with portfolio sales falling to Global Financial Crisis levels, although industrial and logistic properties bucked the trend, according Real Capital Analytics.
The latest Asia Pacific Capital Trends report showed in the third quarter sales fell to US$26.0 billion, down from US$33.0 billion in the second quarter of 2020 and 38% below US$42.2 billion a year ago.
Transactions involving individual properties increased from the prior quarter to total US$23.0 billion due largely to some high-value deals, but portfolio sales fell to levels last seen during the GFC, down 48% from a year ago.
RCA managing director for Asia Pacific David Green-Morgan said the global pandemic continues to hamper dealmaking for a swathe of cross-border investors, and the clouded economic outlook in many markets still presents uncertainty that puts many investors on hold.
“Domestic players seem to hold the advantage at the moment, and the major markets with robust domestic investor bases – such as South Korea, Japan and China – are holding up better in the current environment.”
In Australia, Sydney’s industrial market was a bright spot but international travel restrictions dampened cross-border investors. Third quarter sales was US$2.933 billion, down 61% from a year ago and year-to-date is 43% lower at US$11.484 billion.
“Australia’s third quarter was one to forget. Local lockdowns have stymied dealmaking and international travel restrictions have hampered cross-border investors,”
Sydney industrial and logistics transactions topped a record $US2.2 billion, overtaking Hong Kong to claim the number spot over the first nine months.
However, Sydney’s leap in industrial sector activity mirrors declines of 70% and greater in the office, retail and hotel sectors. By comparison, Melbourne’s office sector remains far healthier, as investment fell by “only” a third in 2020.
Australian regional shopping centres achieved record low yields just last year, but the price trajectory has reversed over the past nine months. Mid-sized neighbourhood centres were the only retail subtype to avoid the drop in investment volume so far. Retail yields have already begun to move out, in part due to the more immediate effects of the lockdowns on retailers. Some large chains have already managed to renegotiate their leases with major landlords over the past few months.
Green-Morgan said some big deals led by European groups have closed this year, but other investors have been notably absent. US capital into Australia is down 94% from the average of recent years. China and Hong Kong activity are also down 80% and 44%, respectively.
In contrast German and UK activity surged 603% and 441%, respectively.
“Trading volume of office, retail and hotel properties in Sydney slumped. A bright spot was the jump in industrial sector sales volume, which made Sydney the most active Asia Pacific market for this property type in the quarter,”
The resilience of industrial sector was witnessed across the APAC region, with activity matching the levels of a year ago but all other key property types declined, with hotel and retail sales showing the sharpest drop.
According to RCA, industrial bucked the trend of double-digit declines in activity. For the first three quarters of 2020, sales of warehouses and tech-focused assets totalled US$19.9 billion, up 15% from a year ago. Interest has been weighted to logistics properties and data centres.
Offices remain the largest component of the APAC commercial real estate market (excluding land sales), and though investment fell by 38% in the third quarter, interest is still being seen for prime offices in some markets.
Unsurprisingly retail and hotel suffered the sharpest drop in the last quarter. For the year so far, trading of retail properties totalled US$13.7 billion, down 53% year-over-year.
“While there are hopeful signals for the hotel industry, such as the easing of some major travel routes, positives for the retail sector are hard to find,”
Meanwhile South Korea was a standout in the third quarter, with sales activity growing by 22% compared with a year ago, boosted by sales of office buildings. A record US$5.0 billion of offices were traded in a single quarter and even the retail sector was busy. At the end of September, there were US$9.3 billion of pending deals in the pipeline – more than the total of completed deals in Q4 2019.
“The outlook for South Korea is looking brighter than some other major economies, with a bulging deal pipeline indicating that the third quarter won’t be just a one-off positive story. Major investors have curtailed their spending overseas, which had been ratcheting higher prior to the pandemic,” Green-Morgan said.
Despite investment sales in Japan falling in the third quarter, to be down 22% over the year, it remains the number country in APAC and Tokyo was the most active metro for commercial property investment sales.