KUALA LUMPUR (July 22): Investment volume in Asia Pacific commercial real estate reached US$83.5 billion in the first half of 2021 (1H2021), representing growth of 39% year-on-year (y-o-y), according to JLL's Asia Pacific Capital Tracker. Increased investment into the logistics and industrial, office, and retail sectors indicates an ongoing recovery of the region’s capital markets. Volumes from January to June this year were down 6% on pre-Covid-19 levels for the same period of 2019.
China, Australia and South Korea comprised 69% of the total investment volume, while activity in Japan was weaker due to disruptions from Covid-19. JLL analysis of capital flows in 2H2021 reveals that office, logistics and industrial, and retail investments made up 31%, 30% and 30% respectively.
“Asia Pacific real estate investment is clearly back as investors reaffirmed their positive outlook, ensuring a sizable upswing in y-o-y volumes in the first half. We expect further activity in 2H2021 as investors look to portfolio deals, corporate sale and leasebacks, and seek more diversification into sectors like logistics and industrial, life sciences and multifamily,” said JLL Asia Pacific capital markets CEO Stuart Crow in a statement.
Logistics and industrial investments surged by 215% y-o-y in the second quarter to US$15 billion, supported by favourable demand dynamics driven by e-commerce expansion regionally, relative yield spreads and investors’ desire to diversify into more resilient asset classes. Major transactions, including the acquisition of the Milestone portfolio by ESR from Blackstone in Australia, were indicative of demand for high quality logistics and industrial assets in the region.
“Similarly, in Malaysia, demand for warehouse space is high, driven by growth of e-commerce and an increase in manufacturing activities due to improved demand for manufactured goods globally, especially electrical and electronics (E&E) products. Many investors, including REITs, are diversifying their real estate portfolios into this sector as it is proven to be the most resilient amidst pandemic,” said JLL Property Services (M) Sdn Bhd country head YY Lau.
Meanwhile, office demand improved in most cities, reaching US$15.5 billion in investment in the second quarter. Investors were buoyed by Australian CBD office markets, which recorded positive net absorption for the first time since the fourth quarter of 2019, while office rents turned the corner in Singapore and Shanghai.
Corporate sale and leaseback transactions also exceeded 10% of volumes in 1H2021, up from an average of 7% in 2015 to 2020. According to JLL, this trend gained momentum in Japan where, since the start of the pandemic, more corporates are pivoting towards an asset-light strategy to strengthen their balance sheets. Similarly, Australian corporations turned to sale and leaseback transactions to unlock value and focus on core business.
Sale and leaseback transactions included the Dentsu headquarters in Tokyo, in the process of being bought by Hulic for up to US$3 billion, and the David Jones flagship store in Sydney, which was sold to Charter Hall for US$374 million (A$510 million) with a 20-year leaseback.
“We expect logistics and industrial investments to double to US$50 to US$60 billion by 2025, and at the same time, investors are seeing signs that office markets are stabilising. With an ongoing appetite for defensive assets and expected growth avenues like sale and leaseback, we maintain our expectations that investment volumes will increase to 15% to 20% this year,” said JLL Asia Pacific head of capital markets research Regina Lim.