Drivers of record APAC real estate set to ignite growth
Auckland, 02 August 2019 - Real estate investment levels in Asia Pacific are projected to reach a new full-year high on the back of a record US$86 billion in real estate transactions over the first half of 2019, according to JLL’s latest Global Capital Flows.
The strong first-half-year showing bucks a global downward trend for year-on-year performance, and is driven by strong interest from other regions, says JLL CEO of Capital Markets Asia Pacific, Stuart Crow.
“Due to the tightening of yields in core markets across the globe, particularly in Europe and the U.S., investors are made to look beyond their domestic markets in search of higher returns.”
Crow also says the region is attracting strong interest from joint venture and consortium structures, notably insurance funds.
“The recent US$1.17 billion sale of the DUO Tower and Galleria in Singapore reflects the strength of the region in attracting international insurance capital - and we’re confident that demand from insurance funds will continue to rise and lift market sentiment.”
Closer to home, property investment in New Zealand has had a more subdued start in 2019 compared to the wider APAC region, with large transaction values – headed by the commercial office sector – down $1.5 billion on last year’s figures. However, pointing to a number of recent transactions, JLL New Zealand Director of Capital Markets, Ross Bolton expects to see an uplift in the second half of the year – also driven in part by consortia and off-shore investors.
“The two largest office transactions of the year, 155 Fanshawe and 66 Wyndham, have both been off-shore investment acquisitions, while we have also seen significant investment by the NZ and Australian Super Funds.”
With record capital being raised globally and increased allocations to APAC real estate funds, Bolton says New Zealand will see increased transactions with institutional, offshore capital.
“New Zealand is specifically being added as an investable jurisdiction within funds who have recently or are in the process of raising capital. At 7.4% in Auckland and 9.8% in Wellington, cash-on-cash yields in the office sector are compelling when benchmarked against other APAC cities. However, the biggest obstacle for New Zealand remains gaining access to quality and scalable assets on offer,” says Bolton.
“New Zealand will be no exception to what we are seeing elsewhere across the APAC region, where funds have been seeking out joint ventures with local partners or investigating fund-through deal structures, as the pressure for managers to place capital, compounds.”
Bolton says that presently there is more than US$18.7 billion of frustrated capital within the Australasian commercial real estate markets, vs. $14.2 billion 12 months prior, so it is of no surprise to see the recent Australian Super $500m deal with local developer Logos Group at Wiri (Auckland), as an example of a creative solution to the problem.
“Overall, while it has been a slow first half of the year, the total volume of commercial investment transactions in the second half of 2019 is expected to increase significantly, with offshore demand for New Zealand a major driver of this growth,” says Bolton.