PODCAST: COVID-19 weighs heavily on APAC real estate markets

The results are in: Asia Pacific’s commercial real estate market has felt the brunt of COVID-19 so far this year, with a sharp decline in investment volumes and rental prices across most major commercial asset classes.

Regional investment volumes in the first six months of 2020 are estimated to have fallen 32 percent from the year-earlier period, according to JLL Asia Pacific Research. The preliminary data showed second quarter investment activity 39 percent lower year-on-year, following the 26 percent drop in the first quarter.

The slowdown came amid lockdowns and travel restrictions that inhibited investors’ short-term capital deployment plans.

“The sharp decline in deal activity reflects the lack of willing sellers and the general uncertainty that exists around market recovery,” says Stuart Crow, CEO, Capital Markets, Asia Pacific, JLL. “Liquidity remains very high, and we expect transaction activity is poised to rebound in the second half as economies further reopen and pricing expectations are adjusted in certain markets.”

Internationally connected hubs of Singapore and Hong Kong saw the most significant declines, with second quarter figures down 68 percent and 65 percent year-on-year, respectively. These were buoyed only by a smattering of transactions, including the acquisition of AXA Tower Singapore by Alibaba.

But China, further along in the cycle, saw a decline of only 15 percent. And Japan’s volumes fell just 20 percent, bolstered by recent transactions in the multi-family sector and strong domestic liquidity.

Asia Pacific’s office sector reported the highest investment volume, supported by healthy institutional investor appetite for core markets.

“There is still significant uncertainty about growth and the shape of recovery amid the COVID-19 pandemic,” says Roddy Allan, Chief Research Officer, Asia Pacific, JLL. “The impact of COVID-19 will remain, but our research indicates investors will approach the market in the second half with measured optimism, which we believe will accelerate further in early 2021.”

The JLL data also showed the impact on rents in the region. Office leasing was generally subdued, with the most severe impact in Hong Kong’s Central district. It posted a 9.3 percent decline, the most significant in the region’s major markets, owing to the backdrop of rising vacancies and weaker leasing demand.

Office leasing prices in Beijing were down 4.1 percent, Sydney was down 3.5 percent, and Singapore saw a 3.3 percent fall.

On the flip side, office rents in Osaka and Seoul’s central business districts rose up to 2 percent.

Retail rents – especially hard hit by lockdowns, mobility restrictions, and strict social distancing – were the most severely impacted. Rents in Hong Kong fell 13.3 percent, the biggest dip in Asia Pacific.

“Supply and demand remain the drivers of leasing performance and, inevitably, as markets continue to experience periods of lockdown, there is a direct impact on demand,” Allan says. “While there were some relative bright spots in select areas, the market does remain unpredictable, and all sides will be watching closely as the second half unfolds.”