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RCA: Asia Pacific Commercial Real Estate Market Slides Again in Third Quarter as Cross-Border Capital Retreats

Real Capital Analytics / November 9th, 2020

Singapore, November 9, 2020 – Sales of commercial property in the Asia Pacific region fell by 38% in the third quarter of the year as the global health crisis put a dampener on cross-border dealmaking, the latest Asia Pacific Capital Trends report from Real Capital Analytics showed.

Sales across the major income-producing property types dropped to $26.0 billion, down from $33.0 billion in the second quarter of 2020 and $42.2 billion a year ago. Industrial sector activity matched the levels of a year prior but all other key property types declined, with hotel and retail sales showing the sharpest drop.

Transactions involving individual properties increased from the prior quarter to total $23.0 billion, boosted by a smattering of high-value deals. Portfolio sales, by contrast, fell to levels last seen during the Global Financial Crisis. For the 2020 so far, deal volume of this type is down 48% from a year ago.

Sales of development sites, which principally take place in China, grew from a year earlier. Deal volume totaled $162.0 billion, an 18% year-over-year increase.

David Green-Morgan, RCA’s Managing Director for Asia Pacific, said: “The global pandemic continues to hamper dealmaking for a swathe of cross-border investors, and the clouded economic outlook in many markets still presents uncertainty that puts many investors on hold. Domestic players seem to hold the advantage at the moment, and the major markets with robust domestic investor bases – such as South Korea, Japan and China – are holding up better in the current environment.”

Sought-After Industrial Sector Bucks the Trend of Double-Digit Declines in Activity

The Covid-19 pandemic has accelerated the rift in sectoral trends, with the industrial sector playing out as the most positive market. For the first three quarters of 2020, sales of warehouses and tech-focused assets totaled $19.9 billion, up 15% from a year ago. Interest has been weighted to logistics properties and data centers.

Offices remain the largest component of the Asia Pacific commercial real estate market (excluding land sales), and though investment fell by 38% in the third quarter, interest is still being seen for prime offices in some markets.

Trading of retail and hotel properties suffered the sharpest drop in the last quarter. While there are hopeful signals for the hotel industry, such as the easing of some major travel routes, positives for the retail sector are hard to find. For the year so far, trading of retail properties totaled $13.7 billion, down 53% year-over-year.

South Korea’s Robust Third Quarter Sets It Apart From Other Major Markets

South Korea was a standout in the third quarter, with sales activity growing by 22% compared with a year ago, boosted by sales of office buildings. A record $5.0 billion of offices were traded in a single quarter and even the retail sector was busy. At the end of September, there were $9.3 billion of pending deals in the pipeline – more than the total of completed deals in Q4 2019.

RCA’s David Green-Morgan, said: “The outlook for South Korea is looking brighter than some other major economies, with a bulging deal pipeline indicating that the third quarter won’t be just a one-off positive story. Major investors have curtailed their spending overseas, which had been ratcheting higher prior to the pandemic.”

Activity Dives in Singapore, Less Than $500 Million Worth of Properties Change Hands

Sales activity in Singapore contracted at the fastest rate of all the major APAC markets in the third quarter and the market is also the worst performing for the year to date, with activity down 74% year-over-year and behind that of Taiwan. Just $405 million of properties changed hands in the third quarter.

Ebbing Cross-Border Flows Hurt Australia in Q3; Sydney Industrial a Bright Spot

Australia’s third quarter was one to forget. Local lockdowns have stymied dealmaking and international travel restrictions have hampered cross-border investors. Some big deals led by European groups have closed this year, but other investors have been notably absent. U.S. capital into Australia is down 94% from the average of recent years. Trading volume of office, retail and hotel properties in Sydney slumped. A bright spot was the jump in industrial sector sales volume, which made Sydney the most active Asia Pacific market for this property type in the quarter.

Taiwan Is The Sixth Largest Asia Pacific Market in 2020 So Far, Third Quarter Activity Leaps

Taiwan’s third quarter volume got a boost from the sale of a Taipei hotel for nearly a billion dollars, but activity was also seen in the industrial sector, with robust trading of high-tech manufacturing facilities. The market climbed ahead of Singapore on the leaderboard of most active markets in Asia Pacific, with deal volume of $3.9 billion notched in the first nine months of the year.

China Forges On With Domestic Investors; Trading of Tier 1 City Offices

With its strong domestic investor base, China has held up better than APAC markets that are more dependent on flows from cross-border groups. Despite some big acquisitions in the data center sector, cross-border investors turned net sellers of Chinese commercial real estate, breaking a seven-quarter streak of acquiring more than they sold. Activity continues to center on Tier 1 cities, with large offices changing hands in Beijing and Shanghai during the quarter.

Japan the #1 Country Market in APAC in 2020, Tokyo the #1 Metro

Investment sales in Japan fell back in the third quarter though for the year so far sales are down only 22%, a decline in line with China’s drop. It remains the largest investment market in the region in 2020, with Tokyo the most active metro for commercial property investment sales. While a domestic investor-oriented market, some significant acquisitions by overseas investors have taken place in 2020 and the flow of capital from the U.S. to Japan remained the most active trade route.

Hong Kong Activity Aided by an Office Megadeal, Year-to-Date Volume Still Down Two Thirds

The biggest deal of the quarter took place in Hong Kong. A mainland Chinese insurance investor acquired a partial interest in a pair of office towers, in a forward sale priced at $1.5 billion. Still, for the first nine months of 2020, Hong Kong office activity is down 67% compared with same period in 2019. Transactions of retail and hotel properties fell at a similar rate.


Note to editors: 

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Alicia Eu

WATATAWA Consulting

+65 8328 4660

Lee Jing Hong

WATATAWA Consulting

+65 9691 1501

Siobhan Crise, Managing Editor, Real Capital Analytics