DTZ Research: Slowdown Continues in Asia Pacific Q2 2011


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DTZ Research: Slowdown Continues in Asia Pacific Q2 2011

  1. 1. Investment Market Update Asia Pacific Q2 2011 Slowdown continues13 July 2011 Total commercial real estate investment volumes fell for the second consecutive quarter in 2011. The value of transactions fell by 37% to reach US$25 billion compared to Q1.Authors Investors became more cautious as the debt crisis in EuropeKasia Sielewicz and the USA intensified with many adopting a wait and seeForecasting & Strategy Research approach. Lack of investable product also prevailed,+44 (0)20 3296 2322 hampering trading volumes.Kasia.sielewicz@dtz.comDavid Green-Morgan Activity slowed down significantly in all countries with doubleHead of Asia Pacific Research digit declines from Q1. Compared to the same period last year+61 (0)2 8243 9913 most countries posted a recovery. But in China and Japan thedavid.green-morgan@dtz.com first half of 2011 is much weaker than in 2010. Investors were favouring mixed-use property which accountedContacts for more than half of all transactions in Q2. Outside China, offices still retained the largest share but investments inTony McGough mixed-use schemes increased over the quarter.Global Head of Forecasting &Strategy Research+44 (0)20 3296 2314 The drop off in activity at the top end has reduced the averagetony.mcgough@dtz.com deal size with domestic investors continuing to secure over 90% of all assets traded.Hans VrensenGlobal Head of Research With anti-inflationary policies now well entrenched in most+44 (0)20 3296 2159hans.vrensen@dtz.com countries across the region, it is expected that investor sentiment will remain muted for the remainder of 2011. Figure 1 Asia Pacific investment volumes Q1 2009 - Q2 2011 US$ bn 60 50 40 30 20 10 0 2009.1 2009.2 2009.3 2009.4 2010.1 2010.2 2010.3 2010.4 2011.1 2011.2 China Japan South East Asia Australia Hong Kong Other Source: DTZ Researchwww.dtz.com 1
  2. 2. Investment Market UpdateInvestor activity slows as global economic Investment volumes in Hong Kong fell by 14% in Q2 and reached US$1.5 billion over the quarter.worries weigh on sentiment Limited supply and strong demand continue to drive prices up in the office sector, to potentially Total commercial real estate investment volumes unsustainable levels. Investors are now turning to fell for the second consecutive quarter in 2011. The other property types seeking value in higher value of transactions fell by 37% to reach US$25 yielding sectors such as industrial and retail. billion compared to US$40 billion in Q1. Investors became more cautious as the debt crisis in Europe In Singapore investments reached US$3.3 billion, a and the United States intensified. Lack of investable fall of 24% on the previous quarter. While there is product also prevailed, hampering trading volumes ample liquidity there are very few core assets for in the region. sale. As in Hong Kong, investors in Singapore are increasingly looking at higher yielding sectors. Activity slowed significantly in all countries with double digit declines from Q1 (Figure 2). When Mixed use schemes gain more importance excluding China the activity across Asia Pacific fell by half to US$10.8 billion. Compared to the same period last year most countries posted a recovery. Investors were favouring mixed-use property which But in China and Japan the first half of this year is accounted for more than half (US$13 billion) of all much weaker than 2010. transactions completed in Q2. This is on the back of several large deals including the sale of the Boon Lay Way development in Singapore for US$782m A reduction in land supply by some local authorities (Table1). and restrictive lending to developers impacted property trading in China with volumes falling by 23% to US$14 billion. Notably, office sales dropped by 46% (US$6.2 billion) while retail sales fell by 35% (US$3.5 billion) in Q2. Investors are reportedly increasingly looking As expected, there was much less activity in Japan. for higher yielding properties potentially in the Investment volumes were down by 86% to US$1.1 industrial sector. This is however yet to be billion over the quarter, with no major deals closed translated into volumes. In Q2 industrial property during Q2. In general, the market still lacks good sales fell by 68% to US$2.1 billion. Outside China, investment opportunities with investors continuing only mixed-use property saw activity growth in Q2 to hold assets. Purchasers may have been looking increasing by 7% (US$ 2.4 billion). Its overall share for a price drop after the earthquake, but this is yet increased from 10% to 22% over the quarter to be reflected in actual transacted prices. (Figure 3).Figure 2 Figure 3% change in investment volumes, Q1 2011–Q2 2011 Investment activity by sector, Q1 2011–Q2 2011 100% 90% -14% 80% -23% -24% -24% -27% 70% -37% 60% -47% -49% 50% -54% 40% 30% 20% -86% 10% 0% 2011.1 2011.2 2011.1 2011.2 Asia Pacific Asia Pacific excl China Mixed Use Office Retail Industrial Other/UnknownNote: Thailand is excluded from the chart.Source: DTZ Research Source: DTZ Researchwww.dtz.com 2
  3. 3. Investment Market Update the lack of deal flow at the larger lot size. TheChinese government continues to divest average deal size is now at its lowest since the global financial crisis when it hovered in the low US$20m Once again this quarter the public sector was a range (Figure 4). major net seller of commercial property, divesting over US$14 billion. The majority of this divestment Domestic buyers dominate comes from within China where the government continues to offload long leasehold development opportunities to the open market. In a continuation of the trend that we have seen over the last two years, domestic investors continue to be the most active buyers in commercial property In a reversal of the market dynamics we witnessed at markets around the region (Figure 5). the height of the financial crisis private investors have become net sellers of property. For over two years private investors were net buyers of Although the ratio improved slightly in Q2, domestic commercial assets but with the recovery in the buyers have been responsible for over 90% of all market they have looked to offload and take profits. deals since the market cycle started to turn at the end of 2008. Replacing them as net acquirers in the quarter were private property companies and corporates, who Outlook together built up almost US$10 billion of new assets. This quarter’s transactional volumes are a further Quoted vehicles are starting to become more active indication that the global economic problems are in the market adding over US$4 billion worth to their affecting the region’s economies and property portfolios in Q2. markets. Although the markets are still well above the lows we saw in late 2008, the bounce backLack of US$1 billion+ deals brings average down recovery of 2009 and 2010 seems to be at an end. For the first time in two years there were no The strong economic growth we witnessed in 2009 individual deals over US$1 billion in the quarter, and 2010 has now translated into higher inflation in primarily due to the sharp fall in volumes in Japan. almost every country in Asia Pacific. While policy The number of deals over US$500m also reduced measures were introduced quickly and have been in from the preceding quarters, with only the mixed use place for some time, it is taking longer than expected scheme on Boon Lay Way in Singapore (Table 1) to bring inflation back under control. This coupled breaching this milestone. with the on-going debt issues in Europe and the USA means that investor sentiment looks set to be muted for the rest of 2011. The average deal size was reduced to US$40m due toFigure 4 Figure 5Investment activity by deal size, Q1 2007–Q2 2011 Investment activity by investor origin, Q1 2007–Q2 2011 US$ bn 70 100% 90% 60 80% 70% 50 60% 40 50% 40% 30 30% 20 20% 10% 10 0% 0 Domestic ForeignSource: DTZ Research Source: DTZ Researchwww.dtz.com 3
  4. 4. Table 1 Significant deals Address Town/City Property type Purchaser Vendor Price (US$m) Capita Land. CapitaMall Boon Lay Way Singapore Mixed-use URA US$782m Trust . Capital Malls Asia The New World Changning Shanghai Mixed-use SOHO China New World China US$492m Commercial Centre Canadian Northland Shopping Pension Plan Preston Retail Gandel Group US$483m Centre Investment Board Charter Hall Woolworths Centres Multi-city Retail REIT and Woolworths US$283m Telstra Super United Urban Arena Tower Yokohama Office Arena Tower YK US$116m Investments Retail Podium of Nan Fung Hong Kong Retail The Link Nan Fung US$150 m Plaza Source: DTZ Research Table 2 Investment market Q2 Q3 Q4 Q1 Q2 Yr to Q4 Yr to Q1 Yr to Q2 2010 2010 2010 2011 2011 2010 2011 2011 Total investment 27.47 38.22 49.87 39.73 24.98 158.37 155.30 152.80 volume (US$ bn) Total purchasing activity (US$ bn) Offices 6.81 9.57 8.99 11.52 6.18 35.05 36.90 36.26 Retail 6.36 10.55 10.07 5.34 3.48 33.75 32.32 29.44 Industrial 2.28 2.94 3.64 6.44 2.07 11.93 15.30 15.09 Mixed Use 11.49 13.89 25.47 15.63 12.98 72.32 66.48 67.97 Other 0.53 1.27 1.70 0.80 0.27 5.32 4.30 4.03 Domestic 24.98 33.97 45.41 37.55 22.68 143.61 141.92 139.62 Cross Border 2.49 4.24 4.46 2.18 2.29 14.76 13.38 13.182 *Due to lag of received data. investment volumes in China have been revised from US$12 bn to US$18 bn in Q1 2011. Source: DTZ ResearchThis report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take noresponsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred towithout prior approval. Any such reproduction should be credited to DTZ.© DTZ July 2011www.dtz.com 4