Commercial real estate recovering

Commercial real estate recovering

Industrial and logistics property demand a key driver amid boom in e-commerce, according to JLL

High-rise office buildings in the central business district of Bangkok.Pattanapong Hirunard
High-rise office buildings in the central business district of Bangkok.Pattanapong Hirunard

Investment in Asia Pacific commercial real estate reached US$83.5 billion in the first half of 2021, representing growth of 39% year-on-year, bringing the figure close to pre-pandemic levels, according to the real estate firm JLL.

Increased investment in the logistics and industrial, office and retail sectors indicates an ongoing recovery of the region's capital markets. Volumes from January to June 2021 were down just 6% on pre-Covid levels for the same period of 2019, according to JLL's Asia Pacific Capital Tracker.

China, Australia and South Korea comprised 69% of the total volume, while activity in Japan was weaker due to disruptions from the pandemic. JLL analysis of capital flows in the second quarter of 2021 reveals that office investments accounted for 31%, while logistics/industrial and retail accounted for 30% each.

"Asia Pacific real estate investment is clearly back as investors reaffirmed their positive outlook, ensuring a sizeable upswing in year-on-year volumes in the first half," said Stuart Crow, chief executive of capital markets in Asia Pacific with JLL.

"We expect further activity in the second half of 2021 as investors look to portfolio deals, corporate sales and leasebacks, and seek more diversification into sectors like logistics and industrial, life sciences and multifamily properties."

Commercial real estate investment volume in Thailand in the first half of 2021 totalled 16.6 billion baht, representing 20.5% year-on-year growth.

"In line with the regional trend, industrial and logistics investments were a key driver contributing to the growth of transaction volume in Thailand in the first half of 2021. They reached 6.7 billion baht, accounting for 40.3% of the total investment volume," said Michael Glancy, country head of JLL Thailand.

"Despite escalating Covid-19, we expect commercial real estate investment volume to exceed the 18 billion baht witnessed in 2020, as the fast growth of e-commerce has continued to drive demand in the industrial and logistics sector, and hotel investment activity is also increasing."

Across the region, logistics and industrial investments surged by 215% year-on-year in the second quarter to $15 billion, supported by favourable demand dynamics driven by e-commerce expansion, relative yield spreads and investors' desire to diversify into more resilient asset classes.

Major transactions, including the acquisition of the Milestone portfolio by ESR from Blackstone in Australia, were indicative of demand for high-quality logistics and industrial assets in the region.

Office demand improved in most cities in the second quarter, reaching $15.5 billion in investment. Australian central business district office markets recorded positive net absorption for the first time since the fourth quarter of 2019, while office rents turned the corner in Singapore and Shanghai.

Corporate sale and leaseback transactions exceeded 10% of volumes in the first half of 2021, up from an average of 7% from 2015-20. According to JLL, this trend gained momentum in Japan where, since the start of pandemic, more corporate investors are pivoting towards an asset-light strategy to strengthen their balance sheets.

Similarly, in Australia corporations turned to sale and leaseback transactions to unlock value and focus on core business.

Sale and leaseback transactions included the Dentsu headquarters in Tokyo, in the process of being bought by Hulic for up to $3 billion; and the David Jones flagship store in Sydney, which was sold to Charter Hall for $374 million (A$510 million) with a 20-year leaseback.

"We expect logistics and industrial investments to double to $50 to 60 billion by 2025, while at the same time, investors are seeing signs that office markets are stabilising," said Regina Lim, head of capital markets research in Asia Pacific with JLL.

"With ongoing appetite for defensive assets and expected growth avenues like sale and leaseback, we maintain our expectations that investment volumes will rise 15-20% in 2021."

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