RCA Insights

Industrial Deal Volume, Yields Are on the Heels of Office

By on August 1st, 2021

Industrial investment in Asia Pacific broke a high-water mark at the end of 2020, but investors aren’t done yet.

Prior to 2021, quarterly volume had surpassed the $10 billion level only twice – in the first quarter of 2018 with the privatization of GLP, and in the fourth quarter of 2020, when over $12 billion of industrial deals were completed.

The exchange of the Milestone Industrial Portfolio for A$3.8 billion ($2.8 billion) in June, Australia’s biggest ever industrial deal, helped push overall APAC industrial investment on level footing with the office sector. But Australia wasn’t the only market benefitting from this boom – virtually all Asia Pacific markets registered significant double-digit increases over historical levels.

As shown in the chart above, the office and industrial sectors have never once, in all history, come anywhere close to parity in terms of share of total APAC investment volume. Offices have commanded the lion’s share of commercial real estate traded. Even throughout the whole of last year, that dominance has barely been challenged, with the sector maintaining its near-50% share, in stark contrast with what was happening in other parts of the world.

That the tables have turned this year points to the strength of demand for industrial properties rather than an office sector on the decline. Office volume in the first half was comparable to last year’s levels, while pricing of prime office properties continues to march ahead — a trend we explore in greater detail in our upcoming Asia Pacific Capital Trends report. But transacted industrial yields have compressed so much over the past 18 months that the traditional 75-100 basis point spread to office yields has all but evaporated this year.

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Real Capital Analytics will release the new edition of Asia Pacific Capital Trends on August 4. If you are not yet a RCA client, contact us to learn how to receive RCA reports and data.

Benjamin Chow

Head of Analytics, Asia
bchow@rcanalytics.com

Benjamin Chow is the Head of Analytics for Asia, based in RCA’s Singapore office and a lead author on Asia Pacific Capital Trends. His expertise spans both the commercial and residential real estate markets in Asia Pacific.