The Rise of Commercial Property Investments in Asia Pacific

For the first three quarters of the year, commercial real estate investment in the Asia-Pacific region was up 25% from a year earlier, shrugging off recent stock and currency market volatility. Transactions in commercial real estate totaled $89.6 billion which exceeded the industry’s expectations. These are clear indications of the improved performance of the real estate industry in the region.

Commercial property markets in the Asia Pacific region continue to outperform amidst the unrelenting demand for exposure to direct real estate returns. Increased activity from Asian Pension and Sovereign Funds together with new sources of global capital that are allocating to Asian Real Estate for the first time were observed.

As such, the year-end forecast has been revised and increased from US$110 to US$120 billion, which would put the forecast at par with 2007 and 2013 as the strongest year in terms of transaction volumes.

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Real estate growth in the region can be attributed to the following factors:

  • The larger markets of Japan, China and Australia account for 69% of the year’s completed transactions in the region.
    • Japan’s domestic and offshore investors continue to improve
    • China’s investment activity also grew significantly over the third quarter, mostly from offshore investors which account for more than half of the value of quarterly transaction volumes. Real estate economy in China continues to indicate stable conditions despite concerns over credit expansion.
    • Australia’s activity grew 25% year-to-date after third-quarter investments increased to 17% from a year-earlier.

The interest of investors in the region is shifting towards consumer property with investors seeking to play tourism through hotel investments, retail shopping and logistics centers.

Such growth can mean two things for the Asian real estate markets. One, the region will continue to attract foreign investors into acquiring reasonable investments in the region while the prices are still relatively attractive compared to other markets. Two, the region might experience caution over interest rates following an announcement from the Federal Reserve that it will slow its asset purchase program brought about by increases in the yields of longer-dated bonds across the region amidst expectations, as observed by Megan Walters of the Asia Pacific capital markets at Jones Lang LaSalle.

But despite such apprehension and given the continued strength of investor sentiment, Walters believed the outlook is still positive for the rest of the year.