Forward momentum in investment activity to continueAugust 20, 2015 / By
Riding on ample liquidity and strong investor appetite, direct commercial real estate investment activity in AP is expected to pick up significantly during the second half of 2015. To get a sense of what forward momentum will be likely for the next 6-12 months in key investment destinations, JLL AP Capital Markets has conducted a quick survey of its head brokers in Australia, China, Hong Kong, India, Japan, South Korea and Singapore in early July, alongside the quarterly investment report – Capital Markets in Focus.
The survey highlights senior capital market team members’ assessment of the short-term outlook in deal availability, participation of cross-border investors and cap rates.
Deal availability – Major deals are in the pipeline in Australia (i.e. CIC’s purchase of the Investa portfolio), and some prime CBD office assets are expected to be transacted soon in Singapore, which show strong deal availability in these two markets. In other markets, deal availability will hinge upon whether there is enough physical stock available. There are evidences of investors looking for innovative ways to access direct real estate, e.g. platform sales in China. In India, investors are looking to take part in anticipated growth in the real estate markets in the next few years via channels such as debt deals, joint ventures and developers’ financing.
No. of foreign buyers – Cross-border investment has been a notable feature of this investment cycle. The first half of 2015 saw Australia recording almost 50% of all transactional activity, Japan 40% and China 30-35%, involving a non-domestic buyer or seller, and this trend will likely continue. “More offshore investors should come to Singapore, where currently 35% of all deals involve cross-border, over the next 6-12 months as value opportunities are emerging,” said Greg Hyland, Head of Singapore Capital Markets, JLL. Stronger global investor interest is also expected in Korea with MERS receding, and in India with the government making slow progress in reforms.
Cap rate – The weight of money continues to push yields to new lows in the Asia Pacific, an indication of investor demand outstripping physical supply. Although yields in Australia are perceived to be near their low point in the cycle, yields may still fall further after the Investa Portfolio sales set new benchmark pricing in the market. Similarly, yields in Korea will likely compress further due to low borrowing costs and strong demand.
By these measures, South Korea, Australia, India and Singapore should see stronger momentum in investment activity over the next 6-12 months, while Japan should see stable momentum. Greater China will likely see stable trends as recent correction in stock market may slow down investors’ decision process. The investment transactional market in many gateway cities should remain active over the next six months. For the full-year, JLL maintains its forecast for transaction volumes of US$140 billion for the region, which translates to a year-on-year gain of 5%-10%.