Asia Pacific real estate investment showed signs of recovery in the third quarter of 2020 with US$35 billion in direct transactions committed between July and September 2020. Volumes rebounded 35% quarter-on-quarter, and while overall third quarter numbers were down 19% year-on-year, transactional activity accelerated across several major markets as investors deployed capital with more confidence than at any other period of 2020, according to JLL (NYSE: JLL).
A third quarter investment rebound was led by activity in North Asian markets, with China, South Korea and Japan all experiencing more transactional activity due to some resumption of economic activity in their respective markets. Concurrently, Tokyo and Seoul have also emerged as the top two cities globally for investment year-to-date 2020, according to JLL Research.
Investment activity in Australia and Hong Kong remained subdued over the quarter. Thailand witnessed the same trend, with local investors turning on a wait-and-see mode, and international investors being confined by travel restrictions.
"The first major signs of a resumption of investment activity emerged in the third quarter, with investment volumes showing meaningful improvement in China, Korea, and Japan. While uncertainty will remain for the foreseeable future, we believe that low transactional activity has bottomed out, and our optimism for the fourth quarter continues to grow," says Stuart Crow, CEO, Capital Markets, Asia Pacific, JLL.
Major themes tracked by JLL in the third quarter of 2020 include:
- Logistics and data centre outperformance: During the third quarter, the broader industrial market performed strongly with transactions up 76% year-on-year, primarily driven by logistics and data centre deals. These assets accounted for 70% and 31% of Japan and China transactions, respectively, in the third quarter of 2020. Asia Pacific office transactions were down 35% year-on-year, while retail and hotel transactions fell 51% and 87% year-on-year in the third quarter, respectively.
- Normalising investor mix: Brewing confidence in recovery was supported by the return of more institutional investment managers in the third quarter. In contrast, activity in the first half of 2020 was mainly due to private investors as larger investment managers waited for more clarity before deploying capital.
- The cost of capital continues to compress: The cost of capital declined sharply in the last six months, boosting buyers' acquisition power as they look to take advantage of narrowing spreads. Financing costs fell 50 to 100 bps year-to-date, further drawing investment managers back to the market.
"Investors returned in greater numbers in the third quarter, reaffirming their appetite for North Asia assets and real estate linked to logistics and data centres. We're confident that the fourth quarter will present a broader range of opportunities across the region, particularly in classes like multifamily and rebounding markets like Singapore," says Regina Lim, Head of Capital Markets Research, Asia Pacific.
Michael Glancy, Head of Transaction Businesses at JLL in Thailand, says "As property developers and owners are changing their portfolio strategy, new investment opportunities are emerging. As an example there is an increasing number of office developments to invest in, including aging assets, some under construction and off plan. Some developers have cancelled their proposed development plans and are selling land plots. Due to pent-up investor demand and an increasing amount of stock, we believe there will be increasing transaction activity over the next 12 months in Thailand."