Knight Frank Asia-Pacific Capital Markets Report

– Singapore & Hong Kong register largest deals in H1 2016
– Singapore & US: the largest cross-border investors in AP
26 July 2016, Singapore – Knight Frank, the independent global property consultancy, today launches the Asia Pacific Capital Markets Report July 2016. With concerns over the state of the global economy, investors are balancing a need for security and liquidity, while searching for the next sources of growth. Technology as a driver for real estate demand is not restricted to China (namely Shanghai, Beijing and Shenzhen). Most major regional markets are seeing growth in this sector, with a number of other tech hubs really standing out: Seoul and Bengaluru.
Asia-Pacific also saw a subtle change in direction in the first half of 2016, as Singapore and Hong Kong returned to the forefront of the region, accounting for the three largest investment transactions.  Total trading was not restricted to these three deals, which were accompanied by a number of other significant transactions boosting volumes after a quiet 24 months in both markets.
Nicholas Holt, Asia Pacific Head of Research, says, “Commercial real estate volumes traded in Asia-Pacific were significantly down in the first half of 2016, with Australia and Japan, the two most dominant markets showing a year-on-year decline. With the amount of prime investment grade property for sale in these two markets at a premium, investors are increasingly looking at other markets for opportunities.
“Two markets that have recently seen an uptick in activity are Singapore and Hong Kong, two of the major regional financial hubs. The largest three deals so far of 2016 were transacted in these two cities. In particular, a willingness for previously significant pricing gaps to be bridged in Singapore led to the largest ever single-tower transaction in Asia-Pacific, bringing optimism that more deals could come to market.
“Elsewhere, Tier-1 Chinese cities are seeing their investment markets deepen and mature – and could start to be seen as core markets for regional or global investors. And India, due to its favourable demographics, infrastructure investment, growth in manufacturing and service industries, as well as initiatives such as the Delhi-Mumbai Industrial Corridor and Smart Cities, is proving attractive to certain investors with longer-term investment horizons.”
Cross-border investment
– Cross-border activity (excluding land sales) in Asia-Pacific markets totalled US$54.5 billion over the past 18 months since 1 January 2015, accounting for approximately one-third of the total investment volumes.
– The US is the most significant cross-border investor in the region, followed closely by Singapore, Canada, Hong Kong and China.
– The major targeted markets remain Australia, Japan, China, Singapore and Hong Kong, although transactions in India, Vietnam and Malaysia demonstrate that there are opportunities in emerging Asia for those investors looking up the risk curve.
Asia-Pacific cross-border investment volumes by country of origin (last 18 months since 1 January 2015)
Institutional investors
Looking at institutional investors, Neil Brookes, Asia Pacific Head of Capital Markets, explains, “Post-Brexit, the current market volatility has caused policy makers to renew their efforts in monetary easing, and as a result the ‘lower for longer’ view for property yields is likely to continue for the foreseeable future. The largest buyers of London commercial assets in 2015 – Chinese and Taiwanese investors – are now starting to switch their focus to other developed markets such as Australia, Japan and the US following the Brexit vote.
“Looking at diversifying portfolios away from pure Asian exposure, several large Singaporean institutions, such as Ascendas and Mapletree, have made large portfolio acquisitions in Australia.  However, we expect volumes to be lower from these buyers as they now seek to grow organically in the Australian market.
“There has also been more activity from institutional buyers, including pension funds and sovereign wealth funds, seeking core returns.  Generally, higher returning assets are more difficult to find in the developed markets of Singapore, Hong Kong, Japan and Australia, albeit there are pockets of opportunity where yields on secondary properties are at a record high spread to prime yields.
“At present, US opportunistic funds are focusing their interests on Europe and the UK, where currency movements and some anticipated market distress are likely to present more buying opportunities than in Asia Pacific. Conversely, appetite for US real estate has increased markedly from Asian buyers – with Japanese, Korean and Chinese funds now regularly outbidding the US investors for prime assets in the gateway cities.”

Notes to editor
Significant deals in Asia-Pacific in H1 2016
  • Singapore: Broke the record for the largest deal in Asia-Pacific
Purchase of Asia Square Tower 1 by Qatar Investment Authority (QIA) for S$3.4 billion (US$2.5 billion) from BlackRock
  • Hong Kong: Second and third largest deals in Asia-Pacific
Sale-and-leaseback of Chinese Estates’ interest in the Mass Mutual Tower to Evergrande for HK$12.5 billion (US$1.6 billion)
Purchase of Dah Sing Financial Centre by China Everbright for HK$10 billion (US$1.3 billion)
  • Sydney:
Investa Property’s (ICPF) purchase of a 75% interest in 420 George Street for AU$442.5 million (US$340 million)
Charter Hall’s acquisition of the Macquarie Bank Building at 1 Shelley Street for AU$525 million (US$379 million)
  • Shanghai:
Corporate Avenue 3 was acquired by a joint venture between Lee Kum Kee and developer China Vanke for RMB5.7 billion (US$865 million)
  • Mumbai:
Brookfield’s pending purchase of Hiranandani Business Park in Powai, Mumbai for a reported US$1 billion
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