Shanghai is now the top city for commercial real estate investment in Asia Pacific, according to JLL.
New research from the firm shows that thanks to a steady stream of transactions at the end of the year, Shanghai now ranks number five globally as a real estate investment market, with New York at number one followed by London, Los Angeles and Paris. Within Asia Pacific, that Q4 2016 performance makes it the number one market. Real estate transaction volumes for Q4 2016 totalled $15.5 billion in China, $7.4 billion in South Korea and $7.2 billion in Japan, as buyers aimed to close deals before the year-end.
Shanghai’s strong performance was driven by a number of high profile transactions, including ARA Asset Management’s $2.91 billion investment in the Century Link complex in October, the biggest single-asset property transaction in Asia Pacific in 2016.
Meanwhile, in the retail sector, the largest transaction of the year involved Chongbang Development conducting an 80 per cent equity stake buyback of Shanghai’s Jinqiao Life Hub for $825 million. Other notable deals include the SCPG Holdings Properties portfolio, purchased by China Vanke from Blackstone Group for $1.9 billion.
Looking beyond cities, total real estate transaction volumes in Asia Pacific grew by 5 per cent in 2016 and 21 per cent year-on-year in Q4, with certain countries in the region driving investment activity.
Office leasing activity surged 23 per cent year-on-year in Asia Pacific in Q4 2016, in large part due to strong growth in India, where volumes were up 82 per cent. Broad-based demand drove a substantial increase in Delhi, while leasing activity from tech firms supported moderate growth in Bangalore.
Financial services and technology firms remain key occupiers in the office sector across the region. Office rentals rose the most in Sydney and Melbourne at 22.5 per cent and 13 per cent year-on-year respectively. In Sydney, there is competition for office space in part due to the demolition of buildings to construct the Sydney Metro.
“With political upheavals such as Brexit and the surprising U.S. election result, an increasing number of investors are looking at opportunities in Asia Pacific and specifically China,” says Joe Zhou, Head of Research, China, JLL. “Domestic capital was the main driver of real estate transaction volumes in 2016, with domestic investors often outbidding foreign investors in many transactions. We believe that China – particularly Tier 1 cities – remains attractive to foreign investors as the market matures.”
The regional outlook remains positive for 2017, with buoyant investor and occupier activity.
“While the uncertain political environment of 2016 is set to continue into 2017, real estate assets continue to attract capital, preserve value and serve as a crucial part of a diversified global investment portfolio,” says Dr Megan Walters, Head of Research, Asia Pacific at JLL.
“We expect stronger activity in Indian real estate, with investors likely to be interested in Southeast Asian countries such as Vietnam and the Philippines that are showing better prospects on rental growth.”
Office yields compress in gateway cities
2nd November 2016
Office yields continued to compress in the world’s gateway cities in the third quarter of 2016, including Sydney, Melbourne, Auckland and Japan.
The bulk of office yield compression this quarter was registered in the Pacific, according to new data from CBRE, where the steady flow of investment grade deals and forecast rental growth continued to exert pressure on office yields in Sydney and Melbourne.
Grade A and Grade B office yields in major Australian cities converged, found the firm’s research, with the differential in the Sydney CBD narrowing to 0.5 per cent.
In comparison, office yields in Asia were largely stable. In Japan, office yields in Tokyo showed signs of stabilising, but some compression was registered in regional cities including Osaka and Nagoya.
Among other major cities, office yields in Hong Kong remain at a near historical low of 2.8 per cent in Q3 2016, as a large number of Chinese and local investors competed for a limited supply.
“Landlords turned more aggressive towards pricing during the period and this is forecast to continue,” says CBRE.
Office yields in Singapore were flat but fundamentals remained weak. However, vendors were under no pressure to sell, especially at discounted prices.
“Despite the economic slowdown in China, office yields in Beijing and Shanghai remained low due to strong domestic investment demand and historically low interest rates,” says the report.
Indeed, domestic demand drove 80 per cent of total transaction activity in China this quarter, with 70 per cent of this in tier I cities.
The trend of compression in Pacific cities and stability in Asian cities is partly supported by investors’ robust appetite for real estate amid the volatile equity market and low returns on government bonds, and also by the prolonged low interest rate environment.
Indeed, while the US Presidential election result, US fed rate movements and global economic recovery will be keenly watched in the final months of this year, ongoing low interest rates wil ensure office yields in the Asia Pacific region will remain low in the near future.
Sydney offices offer the world’s best yields
22nd August 2016
Sydney’s offices offer the world’s best yields to investors, according to new research.
The Australian city has long been a popular destination for commercial property investors, with Savills reporting a surge of more than 40 per cent in sales this year.
Now, a new World Office Yield Spectrum report shows that Sydney offers office yields of 5.62 per cent, the best of the world’s gateway office destinations. The research by Savils and Deakin University compares 43 cities worldwide, with Sydney’s closest competitors coming from LA West and San Francisco, the only other gateway cities to be offering yields of above 4.5 per cent.
“Property yields have continued to firm but bond yields are falling faster and in that context investors are viewing risk premiums of between 2 and 3 per cent in most office investment markets as fair value,” says Tony Crabb, Savills’ National Head of Research in Australia, editor of the report. Indeed, 10 year bond yields have fallen by an average of 50 basis points around the world in the past six months.
Overall, yields are firmed by an average 86 basis points across the report’s 11 gateway cities, with San Francisco yields dropping 235 points since December 2014 and Hong Kong seeing yields slip 40 points to 2.71 per cent. London’s West End is the only other city to see yields of under 3 per cent, while Ho Chi Minh City (9.3 per cent) and Hanoi (9 per cent) offer the highest yield.
“Firming yields in many instances could be viewed as counter-intuitive as soft leasing markets have resulted in very high incentives and correspondingly low net rents, and so any growth in net effective rents, and thus returns, is certainly going to drive even greater demand for office property and ultimately firmer yields,” adds Crabb, noting that a large amount of capital from overseas had encouraged many investors to dispose of property, reweight portfolios and change exposures which had led to a record 12 months turnover of approximately $33.4 billion in commercial property sales.
“Commercial property investment yields have firmed across the board but we still do not believe it has fully run its course,” comments Savills. “In some markets, fundamentals are improving rapidly and that improvement will lead to further tightening in yields as investment capital starts to price in expectations of future NOI growth. This part of the yield cycle is just beginning”.
Foreign investors splash out as Sydney office sales surge
11th August 2016
Foreign investors are splashing out in Sydney this year, as office sales surge by more than 40 per cent compared to the five-year average.
Sales of Sydney CBD and Metro office property totalled more than $8.7 billion in the 12 months to 30th June, according to Savills. Foreign investors were a major driver of activity, spending $3.5 billion in total across 20 properties – 40 per cent of the stock sold. In the central business district, office transactions totalled $4.6 billion over 27 sales, with foreign investors snapping up 60 per cent of the stock sold for a total of $2.67 billion.
Key transactions included the sale of the Investa Property Trust portfolio to China Investments Corporation (CIC) for $1.825 billion, Charter Hall and Morgan Stanley Real Estate’s joint acquisition of the Macquarie Bank Building at 1 Shelley Street, for $525 million, and Investa Property Group’s purchase of 420 George Street for $442.5 million on a reported initial yield of 5.30 per cent – one of the tightest post GFC yields for an A Grade asset.
Savills NSW Managing Director, Simon Fenn, says Sydney’s appeal is fuelled by low interest rates, increasing rental returns and Australia’s safe haven status.
““If ever there was a definitive result required to establish Australia’s and, more specifially, Sydney’s safe haven status there could be no better endorsement than an overall spend of $3.4 billion from foreign investors including 60 percent of CBD sales,” he comments.
“We have seen very strong investment across the board in New South Wales over the last few years and that is both a recognition of Australia’s economic and political stability and the strong capital growth prospects in one of the world’s most recognisable and desirable destinations.”
Fenn forecasts the trend to continue both in the short- and long-term, as Sydney’s leasing fundamentals improve and interest rates remain likely to be reduced further.
Office leasing soars in Sydney
Office leasing has soared in Sydney in the first half of the 2015, as New South Wales leads the way in Australia’s commercial property sector.
According to Colliers International, there has been a 13 per cent increase in the number of of leasing deals across Australia in 2015, compared to the first half of 2014. The amount of space leased, in square metres, is up 22 per cent from 198,360sqm last year to 241,551sqm.
New South Wales is powering ahead, with 112, 937sqm leased year to date, almost double the amount in the first half of 2014.
Cameron Williams, Colliers International National Director of Office Leasing, highlights increased traction nationally at the larger end of the market.
“This is in contrast to 2014 enquiry data, which is a reflection of what we are seeing on the ground – larger firms are driving demand for office accommodation in 2015 compared to 2014, when we saw smaller space in strong demand.”
“Our enquiry data for the second quarter of 2015 also shows a significant shift in the industries searching for office space,” he adds. Indeed, last year, the government dominated activity, but now the business service, communications and finance industries are making up the majority of enquiries and leasing deals.
Businesses searching for substantial office accommodation were driving demand across key office CBD markets, with enquiries for office space nationally up 31 per cent from Q2 2014 compared to Q2 2015 for office space in the 1,000sqm – 3,000sqm category.
Sydney, in particular, has seen demand surge 25 per cent in Q2 2015 compared to Q1 2015. Active tenants include Australia’s larger domestic banks, Atlassian, Dropbox, Expedia and Service Now.
“The big change has been growth,” says Williams. “The tenants that are in the market at the moment are predominantly growth driven.”
“The terms being offered to prospective tenants are quite different to what would have been offered 12 to 18 months ago,” he adds. “Incentives peaked across the market in late 2014 and sub-markets such as the midtown and the western corridor are really starting to tighten, particularly for larger occupiers.”
Despite reports suggesting market conditions are subdued, though, Canberra has also seen a “considerable amount of activity”, notes Colliers.
Michael Ceacis, Director of Government Services, Office Leasing at Colliers International says that while the Canberra market appears focused on attracting large tenants, who are largely the Commonwealth, he is witnessing “significant activity” in the sub 1,000sq m leasing market.