In the first half of 2020, commercial investment fell by 32% year on year.
The full impact of the COVID-19 pandemic was felt in Asia Pacific real estate markets in the second quarter of 2020, according to global property consultant JLL, and contributed to a drop in investment volumes and rental prices across most major commercial asset classes in the first half of the year. offers
According to JLL, investment volumes in Asia Pacific fell 32% year over year in the first half of 2020, with the second quarter activity down 39% year over year, up from a 26% reduction in the first quarter.
As other economies implemented lockdowns and travel restrictions, the drop in investment volumes continued, affecting investors' short-term capital deployment plans. In the second quarter, the highest year-on-year investment declines were recorded in Singapore (-68%) and Hong Kong (-65%), while declines in Australia (-58%), South Korea (-45%), and China (-15%) were partially offset by a revival of activity in the third quarter. Due to transactions in the multi-family sector and significant domestic liquidity, investment activity in Japan (-20%) remained resilient.
"The dearth of interested sellers and the general uncertainties surrounding market recovery are reflected in the steep drop in deal activity in the second quarter." "We expect transaction activity to rebound in the second half as economies continue to reopen and pricing expectations in some regions are modified," says Stuart Crow, CEO of JLL in Asia Pacific's Capital Markets.
The office sector in Asia Pacific continues to have the biggest investment volume, owing to strong institutional investor demand for key markets. Investors are increasingly paying attention to defensive and operation-critical assets, such as logistics, education, and data centers, resulting in a rush of fund raisings and new joint ventures. In the first half of the year, deal activity in retail and hotels remained flat.
With interest rates falling in most key nations, JLL data show a good spread between prime and bond yields in most sectors in Asia Pacific, creating an appealing environment for global investors eager to deploy $40 billion* in dry powder into the area.
Leasing activity has slowed.
Across Asia Pacific, office leasing was mostly quiet in the first half, with only a few markets reporting price rises from quarter to quarter. With increased vacancies and decreasing leasing demand, office rentals in Hong Kong's Central district had the most significant dip (-9.3%). Office rental prices fell significantly in Beijing (4.1 percent), Melbourne (3.9 percent), Sydney (3.5 percent), and Singapore (3.3 percent). The CBD office markets of Osaka and Seoul defied the trend and outperformed in the second quarter, with rents rising by 1% to 2%.
"Office leasing activity throughout Asia Pacific's major markets was rather modest during the second quarter, as heightened economic uncertainty influenced decision-making and lockdowns presented inspection issues," says Jeremy Sheldon, Head of Markets at JLL in Asia Pacific. "While there were some relative bright spots in a few regions, the market remains uncertain, and both sides will be keeping a careful eye on how the second half plays out."
Lockdowns, travel restrictions, and social alienation had the greatest impact on retail, which slowed demand throughout the second quarter. The retail leasing market in Hong Kong (-13.3 percent) had the steepest fall among major Asia Pacific economies. Rents fell across most of Southeast Asia, with Singapore (-8.5 percent) seeing the most substantial decrease.
In the second quarter, the logistics and industrial sectors proved to be the most resilient in the region. In Shanghai (+1.2 percent) and Sydney (+1.0 percent), rental growth remained positive, but in Singapore, Beijing, Sydney, and Melbourne, it remained relatively unchanged.
"Amid the COVID-19 pandemic, there is still a lot of uncertainty about growth and the shape of recovery." Supply and demand continue to drive lease performance, and if markets continue to endure times of lockdown, demand will eventually suffer," says Roddy Allan, Asia Pacific Chief Research Officer at JLL. "While COVID-19 will continue to have an impact, our analysis suggests that investors will approach the market in the second half with cautious confidence, which we expect will accelerate in early 2021."
"The uncertainty in the property market continued as Hong Kong is now suffering the third wave of COVID-19 infection," said Nelson Wong, Head of Research at JLL in Greater China. Housing prices will be weighed down by rising unemployment, bleak business forecasts, and ongoing economic constraints."