Knight Frank Asia Pacific Insights: July 2021

Australasia

Australian Industrial sector leading bounce in commercial investment

A burst of investments into the logistics sector has led a rebound in commercial property deals over the first 6 months of 2021, taking the tally to US$6.7 billion, according to RCA data. At the end of Q2 2021, the total transaction volume of Australian investments had amassed US$11.3bn, already surpassing 2020’s first half total of US$9.6b. To highlight the significance of the Industrial property sector in the market, it accounts for approximately 70% of total investments in 2021 to date. The highlight so far was the US$2.95bn divestment of the Milestone Logistics portfolio, from Blackstone to Hong Kong’s ESR and Singapore’s GIC. Underpinning the success of the Australian industrial and logistics assets are long lease terms, rapid e-commerce growth and effective management of COVID-19 in 2020, injecting investor confidence into the market.

Macquarie raises A$1.1b for ‘sheds and beds’ real estate fund

Macquarie Asset Management just raised A$1.1bn of equity from institutional investors for its new partnership which has a mandate to invest in opportunistic real estate across the Asia-Pacific region, including Australia. The fund will be focused on the logistics and rental housing sectors, with the latter including student accommodation, co-living housing, purpose-built rental apartments (build-to-rent), seniors’ housing and manufactured homes. A spokesperson for the investment giant cited better risk-adjusted returns as a key reason for investment into these sectors. As the yield gap of more traditional sectors such as office and retail continue to tighten against bond yields, alternative real estate sectors will continue to gain more momentum, not only in Australia, with investors seeking to take advantage of current demographic trends and behavioural shifts.

East Asia

Concerns over real estate speculation rise in South Korea

South Korea has recently seen a surge in real estate investment deals that were thought to be speculative and there are now concerns that the country lacks effective measures to prevent it and the resulting price hikes. The Ministry of Land, Infrastructure and Transport showed that foreign individuals owned 21.35 million sqm, up 78% from 11.99 million sqm in 2016. While some legislations have been proposed to curb the bout of foreign purchases of Korean homes, most of the proposed bills are still pending in the National Assembly. Going forward, we expect prices in the market to continue rising for the foreseeable future, but heightened need for legislators to rein in speculative purchases may spur taxes that will cool down the heating residential market.

Positive outlook for HK as blockbuster commercial plot attracts top bidders

Half a dozen leading real estate developers have thrown their hats into the ring to bid for the largest plot of harbourfront commercial land in Central. The land parcel, which can yield potentially 1.61 million sqft of gross floor area, has been valued at between HK$37bn to HK$55bn, topping the scales as the most expensive plot in the city’s history. Just last month, a government land sale site at Causeway Bay was sold to a JV between Hysan and ChinaChem Group for HK$19.8bn. The level of participation from some of Hong Kong’s biggest developers in these two deals signals that Hong Kong’s market outlook is turning positive for the long-term and is making its strong recovery from its worst recession on record in 2020.

Southeast Asia

COVID-19 and oversupply of office space putting pressures on KL’s office market

As the city’s supply and demand gap continues to widen due to weaker demand amid an oversupply of office space, occupancy rates in Kuala Lumpur City Centre’s office market remain under pressure. The average rental rate of office space in the City Centre continued to retreat in Q1 2021 due to challenges arising from re-imposition of various movement control orders (MCO) and full lockdown since early 2021. While new office supply continue to compete for the same pool of tenants, an increasing number of companies are embracing hybrid or flexible working arrangements during the pandemic, causing more space to be released back to the market in the short to medium term. Going forward, many landlords are adopting aggressive leasing strategies to stay competitive especially for new, lowly occupied buildings.

Strong leasing interest for part of StanChart space in MBFC

According to Raffles Quay Asset Management, the asset manager of Singapore’s Marina Bay Financial Centre, the 200,000 sqft of office space released by Standard Chartered (StanChart) bank is receiving strong interest from occupiers from a range of industries. The demand for the surrendered office floors is said to be coming from tech firms primarily, as well as media and financial services. The London-headquartered bank began a flexible work arrangement programme since April 2021, meaning that its requirements of leased office spaces are now less. The bifurcation in recovery between sectors such as technology, which have been expanding quickly throughout the pandemic, and banks and financial institution, which have been rationalizing office footprints since the Global Financial Crisis in 2009, means that the demand for office spaces in Singapore’s CBD will continue becoming less dominated by one sector alone like it has been traditionally.