Regional Summary
Investment activity commenced the year firmly across Asia Pacific, with USD 27.4 billion of transactions in the first quarter. Volumes were up 29% on the same quarter last year and up 3% from the strong final quarter of 2012. For the most part, capital from institutional investors continues to chase core trophy assets; however we are seeing evidence of some groups starting to look up the risk curve. Opportunities into core-plus and value-add assets are starting to present a strong case for superior risk-adjusted returns given the aggressive pricing in core assets. Capital continues to flow into the real estate sector in the Asia Pacific region from multi-asset investors as well as pension and sovereign wealth funds, as asset allocation strategies continue to favour income producing assets. We continue to see a shift towards equity partnering, JVs and club deals as investors seek greater control of their assets.
The financing environment remains mixed across the region with investors continuing to seek out new sources of capital to diversify their debt portfolios. Asian bond markets continue to increase their global share as liquidity constraints (in some markets) and new regulation on bank lending help to accelerate the development of the bond market. The exodus of European lenders who continue to repatriate capital and reduce their balance sheet in the region is being somewhat offset by the larger role being played by regional and domestic banks. Lending margins remain high but continue to show a downward trend in most markets. All in funding costs remain attractive to real estate investment given the extremely low interbank lending rates across the more developed markets in the region.
Market Trends in 1Q13
Confidence in Japan has improved in early 2013 associated with planned stimulus measures to reflate the economy proposed by new PM Shinzo Abe. A weaker yen will also support the export and labour markets and have a positive flow on effect for commercial real estate markets. Domestic groups in Australia including A-REITs are back on the acquisition trail as unit prices have moved back in line with Net Asset Values (NAV). The cost of debt has continued to edge lower over the past 12 months and levered acquisitions are yield accretive to existing portfolios. The lull in investment activity seen in China in the second half of 2012 is showing signs of reversing after relatively firm performance in 1Q13 (up 2% on 1Q12 and 68% on 4Q12).
Most other core markets in the region performed fairly well during the quarter with Hong Kong recording investment volume growth despite cooling measures imposed through higher stamp duty and more restrictive mortgage lending practices. It was however a quarter of two halves with much of the activity occurring prior to the cooling measures. Singapore also recorded strong levels of investment activity, primarily due to a few very large deals concluding during the quarter. On the whole, we remain positive in our outlook for the region and we maintain expectation for full year 2013 investment volumes of USD 110 billion.
