APAC Investment Volume Falls 42% but Outlook Positive
APAC Investment Volume Falls 42% but Outlook Positive
May 16, 2012
Hong Kong Bucked the Downward Trend with Volume Surging by 100% q-o-q
16 May 2012, Hong Kong – Asia Pacific investment volume fell 42% q-o-q to US$11.6 billion in Q1 2012, according to the latest Asia Pacific Capital Markets Marketview report published by CBRE, the leading global real estate services firm.
Despite subdued sentiment this quarter, investment volume is expected to increase in the coming months, given continued investor interest in non-core assets and an easing lending environment.
Overall, the slow start to the year was driven in part by New Year holidays in January and the high investment volume witnessed in 2H 2011 which removed several assets from the market. The only market to buck the downward trend was Hong Kong, where investment volume surged 100% q-o-q thanks to the improved lending environment. All other markets across Asia Pacific saw a decrease in investment volume.
Investment volume in Hong Kong totalled US$2,629 million in Q1 2012, a surge of 100% increase q-o-q as compared to US$1,353 million in Q4 2011. 86% of which came from local investors.
In Asia Pacific, domestic capital continued to drive the market, while cross border acquisitions declined. Domestic capital during Q1 2012 accounted for nearly 86% of the total investment volume. Deals completed by Asia REITs, domestic private investors and end-users comprised 55% of total investment turnover, up from 44% recorded in Q4 2011. On the other hand, cross-border acquisitions continued to slide in Q1, falling 69% q-o-q to US$1.6 billion and accounting for just 14% of the total investment volume during the period.
Hong Kong enjoyed a strong rebound following a weak Q4 2011 as activity picked up after Chinese New Year on account of the more relaxed lending environment. Many local banks sped up the approval of loans submitted in 2011 and adopted a more optimistic view towards valuations while keeping borrowing rates largely unchanged. A gradual easing of concern over the global economic slowdown also contributed to the more buoyant market. Domestic investors continued to dominate whilst foreign property funds remained inactive. Hospitality properties and retail assets were most sought-after. Momentum should remain positive but room for further price growth is limited as investors are still apprehensive about the current high pricing.
In Asia Pacific, investors continued to shift their focus away from core office assets on account of the slowing leasing market, lack of quality product for sale and more attractive yields available in other sectors. Investment volume for office assets was just half of that recorded in Q4 2011, while volume in the retail sector was stable, down just 4% q-o-q. Demand for this product is anticipated to increase as domesticconsumption grows and international retailers expand across the region.
Demand from local investors should remain firm in the near future, as evidenced by robust interest for retail and logistics assets. This—combined with the tight lending environment beginning to ease as central banks across the region adjust monetary policy—will likely have a positive effect on the market.
Talking about the short-term outlook of the Asia Pacific capital markets, Dr. Nick Axford, Executive Director and Head of CBRE Research, Asia Pacific said, “Activity in the Asia Pacific region is expected to pick up over the coming months. Domestic capital will continue to account for the bulk of transactions as institutional investors, particularly the larger international groups, remain cautious about the global outlook. Investors will continue to shift their focus away from core office assets to other sectors where more attractive yields are available.”
Talking about the Hong Kong market, Dominic Chung, Executive Director, CBRE Investment Properties, Hong Kong commented, “We have seen a significant pick-up of investment activity this year, largely as a result of financial institutions resuming lending as well as accumulated investor demand which had built up over the last 6-9 months. A softer sell side attitude has led to more achievable sale prices and with some developers looking to dispose of non-core properties to generate cash for land opportunities there have been new stock options available.
Looking ahead, we do expect a sustained buying interest in the market with the wealth effect from China and a current lack of alternate investment and financial product options. However, while prices have begun to pick up due to the weight of demand, liquidity going forward will be an important factor and if credit availability tightens then investment flows could dry up quickly.”
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
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