The market is being driven by the rise of Asian institutional investors and fund managers. Ad hunters
According to CBRE, cross-border property investment in Asia accounted for 36% of total turnover year-to-date, up 36% quarter-on-quarter to $10.6 billion, the highest total since 2008.
Investment turnover increased 20% quarter-on-quarter to $25.6 billion in Q3 2015, according to preliminary CBRE estimates, despite the year-to-date investment volume being down 24% relative to the same time in 2014. Investor enthusiasm remained high in Australia and Japan, which accounted for 56 percent of total regional turnover in the third quarter. The Pacific region attracted a lot of Asian resources, which was attracted by the high yields. Due to stable fundamentals being relatively inexpensive in these markets, compared to assets in their own domestic markets, Australia—particularly in Sydney and Melbourne—attracted strong investor demand from Asian investors.
CBRE Asia Pacific's Senior Director of Research, Ada Choi, commented, "This quarter saw a surge in activity in the region's investment environment, thanks to renewed interest from western investors and the rise of Asian institutional investors and fund managers. International institutional investors continued to add to their real estate portfolios in the area, indicating that they are looking for long-term investments that will produce returns above inflation."
"Asian investors continue to be attracted to offshore opportunities, looking abroad to diversify an increasing pool of domestic wealth globally, as cross-border investment gains traction."
"Big-ticket deals through a number of asset classes increased investment volume in Q3, including the sale of the InterContinental Hong Kong hotel to GAW Capital for $940 million and CIC's purchase of a $1.7 billion office portfolio from Investa in Australia. This represents the strong desire for big-ticket deals among large-scale institutional investors "Ms. Choi added.
In addition, the findings showed that India has seen a rise in capital inflows from major foreign investors, owing to its faster GDP growth than China and one of the strongest market sentiments in the country. The occupier markets in India are showing healthy activity, bolstered by strong office demand from the e-commerce and BPO sectors.
Despite the strong investment activity in the quarter, the occupier markets in the area saw slower rental development.
CBRE Asia Pacific's Head of Research, Dr. Henry Chin, said, "On the back of weaker fundamentals such as weaker business and consumer sentiment, occupier markets saw slower rental growth in Q3 2015. In the office market, a 20 million square foot NFA is set to be completed in Q4 2015, making it more difficult for landlords to keep tenants. The majority of leasing operation occurs in decentralized areas in key markets and major BPO outsourcing destinations like India. As a key engine of decentralization, cost-cutting relocation has exceeded flight-to-quality."
Overall rents dropped 0.3 percent quarter-on-quarter in the retail sector, as Hong Kong experienced its sharpest drop since 1998 (-9.1 percent quarter-on-quarter) due to a change in mainland Chinese tourist spending habits combined with slower tourist arrivals. In comparison, Hong Kong's office market remained positive, with vacancy in the Central CBD remaining below 1%.
"Tourism is still a factor, with changes in tourist consumption and travel habits, especially among mainland Chinese tourists, affecting the retail sector in several markets. The weaker tourism industry impacted Hong Kong and Singapore's retail markets the most, and retailers are delaying expansion plans in China due to concerns about China's economic development. In Q3, most Chinese cities saw very little rental development. In comparison, tourist numbers in Japan continued to rise as a result of the low Japanese yen, resulting in increased leasing demand in Tokyo, mostly from upmarket retailers. In Australia, demand for prime space from international retailers remained high, especially from premium brands and food and beverage retailers "Dr. Chin agrees.
In other news, the newly signed Trans-Pacific Partnership (TPP) is expected to boost trade flows, lower the cost of goods, and enhance job opportunities for Asia Pacific countries that participate. The manufacturing sector will be the main beneficiary, with Vietnam, Australia, and New Zealand receiving preferential treatment. Since the TPP has a long way to go until it is fully implemented, these advantages can only be realized in the long run.
Other significant Asian market highlights include:
Due to stock market uncertainty and renewed concerns of a China slowdown, overall corporate morale in the office sector deteriorated in the quarter. Demand deteriorated in most markets, with the exception of Bangalore, New Delhi, Shanghai, Shenzhen, and Seoul, which saw net absorption drop by nearly 30% quarter-on-quarter to 11.2 million sq. ft. NFA. In 2015, CBRE expects a 10% rise in net absorption over the previous year.
Quarter-on-quarter, office rents increased by just 0.3 percent. Singapore's rental correction (-3.5 percent quarter-on-quarter) was compensated by strong growth in Hong Kong (+3.0 percent quarter-on-quarter) and Auckland (+2.2 percent quarter-on-quarter).
F&B remained the most successful retail sector, but previously brisk markets like Shenzhen and Singapore are nearing saturation.
Despite strong demand from overseas retailers, retail rents in the Pacific continued to rise—2.3 percent quarter-on-quarter.
Third-party logistics, e-commerce, and retailers continued to drive leasing demand for logistics warehousing space in Q3, but the supply side dominated rental movement in many markets.
Oversupply issues in Melbourne (-2.4 percent quarter-on-quarter), Tokyo (-2.2 percent quarter-on-quarter), and Singapore (-1.6 percent quarter-on-quarter) weighed down overall logistics rents, resulting in a 0.7 percent quarter-on-quarter decline in capital values, the first drop since Q3 2009.