Japan Continues Growth Streak Even Rest Apac Commercial Property Sales Contracted 1Q2024
The first quarter of 2024 saw a decline in commercial property trading, due to high interest rates and a retreat from deals in the apartment, office, and seniors housing sectors. However, there was a surge in activity in the data centre sector, driven by the growing demand for assets that power the digital economy.
While overall deal volume fell by 13% year-on-year to US$31.3 billion, there were some bright spots in the region. Japan saw a recovery in office investment and strong acquisition momentum in other sectors, indicating that the recent changes to the Bank of Japan’s interest rate policy have not had a significant impact on investor sentiment.
The data also showed that many major markets in Asia Pacific have shown resilience in both deal activity and performance returns, despite the high interest rate environment. Retail was one of the strongest sectors, with deal activity reaching US$7.4 billion for the quarter, the highest proportion it has seen in any single quarter over the past five years.
On the other hand, office volume continued to decline in most markets in Asia Pacific, with a more than 20% decrease compared to the same period last year. The multifamily sector also saw a slowdown in acquisition momentum, although there were still conversions of hotel properties in markets like Singapore and others.
In terms of cross-border investment, there was a slight increase in flows from outside the region, but this was balanced out by subdued activity from regional investors. This led to the share of cross-border investment remaining at a low level of just under 25%.
Hong Kong’s deal activity showed a mixed picture, with a pick-up in activity in the retail sector due to yield expansion, but stubborn pricing holding back a recovery in appetite for high street shops and offices.
In Singapore, the retail sector performed well, while office market activity slowed, making it the lowest performing sector for the first time in years. There was also a focus on residential and co-living sectors, with three hotels being acquired for conversion in the first quarter of 2024. Meanwhile, suburban malls continued to be transacted despite high pricing levels.
China remained an active market, with a total of US$40 billion in commercial property transactions in the first quarter of 2024. However, the office sector continued to struggle, with a 19% decrease in activity compared to the same period last year.
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Japan was the top performing market in the first quarter, with a strong showing in both the office and industrial sectors. There were also multiple major deals in the logistics and data centre sectors, as well as cross-border interest in Tokyo offices, which had previously been lacking.
South Korea saw a rebound in activity compared to last year, with a surge of over 80% in volume. However, it was still down by about 30% compared to the five-year average. Seoul remained one of the few office markets globally where major deals were still being struck.
Looking ahead, there are indications that the decrease in investment activity has reached its bottom and may start to pick up again. However, yields are likely to remain low, as borrowing costs and deal prices are still high. The potential impact of upcoming interest rate cuts by the US also remains uncertain.