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2013 set to become strongest year on record for Asia Pacific commercial real estate markets as transaction volumes continue to surge

Latest figures from Jones Lang LaSalle show investment volumes in the region up 33 percent y-o-y as the firm ups its forecast for the remainder of the year

SINGAPORE, 21 October 2013 – Direct investment into commercial real estate markets in Asia Pacific grew 33 percent y-o-y in Q3 2013, reaching US$30 billion. The latest figures from Jones Lang LaSalle Capital Markets research confirm that transaction volumes have grown y-o-y every quarter in 2013 with investment activity reaching US$89.6 billion at the end of Q3, up 25 percent on the same period in 2012.

Stuart Crow, head of Asia Pacific capital markets at Jones Lang LaSalle said, “The Asia Pacific commercial property markets continue to outperform on the back of unrelenting demand for exposure to direct real estate returns in the region. We are seeing 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.  Following yet another quarter where growth has exceeded expectations, we have revised our year-end forecast from US$110 to US$120 billion. If this figure is reached, it will put 2013 on a par with 2007 as the strongest year ever by transaction volumes.”

The growth in the region was predominantly led by the larger markets of Japan, China and Australia which, together, account for 69 percent of the year’s completed transactions in Asia Pacific. In Japan, third quarter volumes reached US$8.7 billion, up 139 percent on the same quarter last year. Year-to-date transaction volumes now total US$29.5 billion, up 69 percent y-o-y as sentiment amongst both domestic and offshore investors continues to improve.

Investment activity in China also grew significantly over the quarter, up 167 percent y-o-y to reach US$7 billion. Year-to-date volumes grew 34 percent to US$16.6 billion as interest from offshore investors remains strong, accounting for over half the value of quarterly transaction volumes. Despite concerns over credit expansion, there are early indications of more stable conditions in the country’s ‘real economy’.

Dr Megan Walters, head of Research for Asia Pacific capital markets at Jones Lang LaSalle commented, “Although transaction volumes have surged over the first three quarters of this year, as predicted, we are starting to experience caution over interest rates after the Federal Reserve’s recent announcement to slow its asset purchase program. Longer dated bond yields across the region have moved higher, highlighting concerns around the direction of global rates and prompting investors to underwrite interest rate rises in their acquisition due diligence. Nonetheless, given the robust pipeline and continued strength of investor sentiment, we remain positive on the outlook for the remainder of the year.”

Country focus

Investment into Singapore’s commercial real estate market grew by a surprising 106 percent from Q2 2013 with US$4.2 billion traded over the quarter. Volumes were supported by two heavily oversubscribed IPOs including SPH REIT (SG$504 million) and OUE hospitality RIET (SG$600 million), as well as the sale of the Grand Park Orchard hotel and Knightsbridge retail asset, brokered by Jones Lang LaSalle for SG$1.16 billion (US$920 million). 

Although investment activity in Australia slowed from the strong second quarter, it still grew 17 percent y-o-y and 25 percent on a year-to-date basis to US$4.9 billion. Offshore groups remain active, accounting for over 50 percent of deal volumes this quarter, including recent interest from private groups entering the market. The contrasting domestic interest rate cycle is also offsetting some of the heightened interest rate risk seen in other markets.

Transaction volumes in Hong Kong were down 76 percent y-o-y to US$700 million as the cooling measures imposed earlier this year coupled with current market pricing and interest rate concerns push investors offshore. In the third quarter, close to US$2 billion of Hong Kong based capital was deployed to other markets around the region.

Transaction volumes in India totalled US$770 million in Q3 2013, driven by a handful of acquisitions by corporate owner occupiers and a further investment from Blackstone which continues to expand its presence in the country. While the challenging conditions in India’s investment markets are expected to continue over the short-term, attractive prices and entry yields are proving a draw for private equity investors.  Development projects continue to source funding, even in the difficult lending environment, although investors continue to favour development projects in more advanced stages, in order to mitigate risk.

While there was no major investment deals recorded in Indonesia over the quarter, the market continues to deliver strong rental growth. The depreciation of the rupiah (18 percent year to date), coupled with recent economic volatility has contributed to a widening of the country’s deficit prompting the government to deploy foreign reserves in a bid to stem further currency depreciation.

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About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.3 billion of real estate assets under management.

Jones Lang LaSalle has over 50 years of experience in Asia Pacific, with over 26, 100 employees operating in 79 offices in 14 countries across the region. The firm was named ‘Best Property Consultancy’ in three Asia Pacific countries at the International Property Awards Asia Pacific 2013, and won nine Asia Pacific awards in the Euromoney Real Estate Awards 2013. 

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