Knight Frank Asia Pacific Capital Markets Report H2 2020

2020 has presented challenging circumstances for the Asia-Pacific market, but strong domestic demand and optimism on the route to recovery from the pandemic, the region is expected to begin its rebound in 2021. Knight Frank Asia-Pacific recently published its H2 2020 Capital Markets report, and in it, we look at how the second half of 2020 unfolded for the region’s capital markets, and how the recovery of its economies will shape it in 2021.

Investment Volumes Down in H2 2020, but Bright Spots Persist

The total commercial transaction volumes in Asia-Pacific fell 37% year-on-year in H2 2020, amounting to only US$61.7 billion in the period. This brings the full year’s transaction volumes down to a decrease of 31% year-on-year, to US$134.6 billion, the lowest levels since 2012. Despite the overall year-on-year decline in volumes, the market did have bright spots. Japan and Mainland China each recorded year-on-year growth in volumes. South Korea was up 28% year-on-year, a very notable level of growth, with notable transactions such as ARA’s acquisition of Parc 1 Tower 2 for US$897 million.

The rise of the Industrial Real Estate Sector

The office asset class remains the most sought in the Asia-Pacific region in 2020, accounting for 47% of all commercial transaction volumes in the year. However, this was a slight decrease from its 5-year average market share of 52%. This is expected, considering the softening of rent growth expectations due to poor business sentiments, rising vacancies, and shrinking demand in 2020. On the other hand, the industrial sector benefitted from the trends brought about by COVID-19. E-commerce demand had greatly improved over the course of the year, as traditional retail took a hit from the pandemic. This helped the industrial real estate sector achieve an approximate 50% increase in market share, rising from its 14.8% 5-year average to 22.3% in 2020. As internet penetration rates continue to rise and new consumer habits stick, we expect the industrial sector will continue experiencing growth in demand going forward.

Cross-border Volumes Takes a Blow

Cross-border volumes fell in 2020 for the first time in the past decade, declining -39% year-on-year to US$37.8 billion due to borders being closed and international travel being halted. This had made it discouraging to complete transactions in 2020 and many deals were delayed or halted indefinitely. As the region recovers from the pandemic and governments explore possibilities of international travel again to reinvigorate economies, we expect cross-border commercial volumes to rebound in 2021. Key gateway markets such as Singapore, Australia and Japan are likely to see greatest levels of recovery, due to being deemed ‘safe haven’ markets.

A New Target for Capital in the West

In 2021, we also expect capital flight out of the region, as investors look to diversify their exposures and snap up assets at attractive pricing in global gateway cities, such as London. The top two Asia-Pacific capital sources, Singapore and Hong Kong, had invested US$3.1 billion into commercial assets in London in 2020, which was level year-on-year compared to 2019. As Brexit concludes and exchange rates continue being favourable, we expect London will continue seeing more interest from Asia-Pacific investors.

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To read the full Asia-Pacific Capital Markets H2 2020 report, click here.