Asia Pacific real estate investment rebounds 35% in Q3 with stronger investor activity in China

Shanghai, 5 November 2020 - Asia Pacific real estate investment showed signs of recovery in the third quarter of 2020 with US$35 billion in direct transactions committed between July and September 2020. Volumes rebounded 35% quarter-on-quarter, and while overall third quarter numbers were down 19% year-on-year, transactional activity accelerated across several major markets as investors deployed capital with more confidence than at any other period of 2020, according to JLL.

A third quarter investment rebound was led by activity in North Asian markets, with Mainland China (-10% year-on-year), South Korea (-2% year-on-year) and Japan (-18% year-on-year) all experiencing more transactional activity due to some resumption of economic activity in their respective markets. Concurrently, Tokyo and Seoul have also emerged as the top two cities globally for investment year-to-date 2020, according to JLL Research. 

Investment activity in Australia (-45% year-on-year) and Hong Kong (-27% year-on-year) remained subdued over the quarter. 

"The first major signs of a resumption of investment activity emerged in the third quarter, with investment volumes showing meaningful improvement in Mainland China, Korea, and Japan. While uncertainty will remain for the foreseeable future, we believe that low transactional activity has bottomed out, and our optimism for the fourth quarter continues to grow," says Stuart Crow, CEO, Capital Markets, Asia Pacific, JLL.

Major themes tracked by JLL in the third quarter of 2020 include:

• Logistics and data centre outperformance: During the third quarter, the logistics and data centre investment market performed strongly with transactions up 76% year-on-year. These assets accounted for 70% and 31% of Japan and China transactions, respectively, in the third quarter of 2020. Asia Pacific office transactions were down 35% year-on-year, while retail and hotel transactions fell 51% and 87% year-on-year in the third quarter, respectively.
• Normalising investor mix: Brewing confidence in recovery was supported by the return of more institutional investment managers in the third quarter. In contrast, activity in the first half of 2020 was mainly due to private investors as larger investment managers waited for more clarity before deploying capital. 
• The cost of capital continues to compress: The cost of capital declined sharply in the last six months, boosting buyers' acquisition power as they look to take advantage of narrowing spreads. Financing costs fell 50 to 100 bps year-to-date, further drawing investment managers back to the market.

“In the first three quarters of this year, the total transaction volume of real estate investment in Mainland China recorded approx. RMB 151.5 billion. Domestic investors, particularly self-users buyers has been the main force, accounting for 70% of the total activities,” says Jim Yip, Head of Capital Markets, China, JLL, “Looking ahead, with the narrowing of the price expectation gap, as well as approaching to the end of the fiscal year, some investors who were on the sidelines may choose to return to the market at this time. The pace of some of the projects being discussed is also expected to accelerate. We are confident that the investment market activity in the fourth quarter will rebound further, but the annual transaction volume will still be lower than last year's historical high.”

Read the full report here.