APAC a hotspot for foreign capital investment

APAC a hotspot for foreign capital investment

25 October 2019

The inflow of foreign capital into commercial property has hit a record $20 billion in the year to September, and is likely to continue on a similar trajectory as overseas investors seek attractive yields and find relative value with a low dollar, reports The AFR.

Tokyo has claimed the top spot as the highest-ranked market for real estate investment in Asia Pacific, according to Cushman & Wakefield’s ‘Winning in Growth Cities’ investment report. Tokyo replaced Hong Kong, which saw a notable fall of 38% y-o-y.

Asia Pacific claimed seven of the top 25 cities compared to five in Europe. As with North America, a number of these destinations were in growth mode and the top 25 overall again outperformed, with volumes rising 5% and their market share increasing from 53% to 56% as investors focussed on the biggest and most liquid markets.

Beijing was the fastest growing major Asian city, with volumes doubling, resulting in the city moving up 11 places in the ranking to number 25.

Globally, New York strengthened its position as the number one global city for real estate investment, growing 20% year-on-year to take the top spot in the index for the eighth year running. Los Angeles took second spot, while San Francisco climbed three places to third – in the process overtaking London in fourth and Paris in fifth.

Francis Li, International Director, Head of Capital Markets, Greater China at Cushman & Wakefield, commented: “Asia Pacific remains a global growth leader and investors will continue to channel funds here to ride the region’s long-term structural dynamics. While investors will turn more selective in a late cycle environment, gateway cities with stable fundamentals will continue to lead investments. We believe the region’s diverse economic backdrop and demographically driven growth markets in India and Southeast Asia to remain compelling prospects across cycles; the current round of deleveraging in China have also unlocked opportunities across its cities.

“Tokyo’s rise up the rankings ahead of Hong Kong comes as no surprise due to its strong fundamentals, fed by a tourism boom and investment momentum in the run up to the Olympics. The city’s real estate is in an investment sweet spot: strong pre-leasing commitments and robust demand have whittled office vacancies to record lows and the lower-for-longer environment continues to fuel investments by J-REITs and foreign funds.”

The sources of capital crossing borders into real estate grew more diverse in the past 12 months. For the fourth year running Asia Pacific – led by Singapore and South Korea – remained the biggest source region overall despite outbound volumes dropping nearly 13% and its market share easing to 38% overall. Singapore investors were the most prolific, ranking 4th globally, followed by South Korea, ranking 7th after a 50% increase in cross-border spending over the year. Japanese capital also continued to stir, rising 61%, ranking as the 13th largest source of international capital. Last year’s regional leaders, China and Hong Kong, both fell back into 11th and 8th place respectively.

According to Cushman & Wakefield, for Asia Pacific, growth may be set to slow further next year whether looking at consumption or employment figures, but overall will remain attractive on a global basis and more foreign capital is likely to flow towards the region.

Occupier markets are mixed, with some seeing increased supply and others slowing demand, but the market offers a wide range of cities as investment options and sector-by-sector there are attractive areas for short- and medium-term returns.

These may be in still demand-driven parts of the CBD office market, the largely undersupplied logistics sector, or demographically driven residential markets.