According to CBRE’s Q1 2016 MarketView, total commercial property investment turnover in Asia Pacific in the first quarter of 2016 declined by 36% quarter-on-quarter as investors generally turned more risk-averse, due to stock market volatility and weaker economic environment. Asian capital in particular, however, remained active across the region with the completion of three big-ticket transactions in Greater China by Chinese investors.
Q1 2016 saw Hong Kong’s second largest-ever transaction for an office property, in which China Everbright Limited acquired the Dah Sing Financial Center for around US$1.3 billion. Regardless of this key deal though, investment activity on the whole remained low in Hong Kong.
“Despite slower activity in the investment environment overall, international institutional investors are continuing to display strong preferences for core assets in major markets to increase their exposure for strategic diversification,” said Dr. Henry Chin, Head of Research, CBRE Asia Pacific. “In Australia and Japan, however, even though international investors remain active with strong demand for core assets, transaction volume in both markets declined. High prices in Australia discouraged domestic fund managers from purchasing, with some opting to sell non-core assets to recycle capital for future investments. In Japan, despite strong demand from investors, the lack of stock was a limitation as there were fewer institutional quality properties being offered for sale, especially in core markets such as Tokyo.”
Concerns over the economic climate, along with weaker business and consumer sentiment, have also led to softening occupier markets across the region in Q1 2016.
“The first quarter of the year is traditionally a quiet period for office leasing,” said Dr. Chin. “The office sector saw a slowdown in leasing momentum overall, however, in China’s tier-one markets such as Shanghai and Shenzhen, office demand remains robust with solid rental growth. Elsewhere, leasing demand is being driven by flight-to-value relocations with firms moving to decentralized areas to reduce costs. Expansionary demand is confined to Shanghai and Mumbai. In light of weakening corporate sentiment, landlords are also becoming more cautious and focusing on tenant retention, especially in markets such as Hong Kong and Tokyo.”
In the retail sector, Hong Kong suffered its biggest decline in retail sales since 1999, falling by 13.6% year-on-year in January and February combined, due to the sharp drop in tourist arrivals and weaker domestic consumer sentiment. The bulk of Asia Pacific’s leasing demand was driven by fast fashion and F&B retailers. Most Asian markets were quiet but leasing momentum in the Pacific remained healthy.
“Most Asian retail markets are still negatively impacted by the change in tourist consumption and traveling patterns, especially by Mainland Chinese tourists. The weak Chinese yuan is affecting their spending power. Additionally, in contrast to the last couple of quarters, the strong Japanese yen is beginning to impact visitor spending in Japan, which places pressure on retail sales growth. In Q1 2016, Tokyo saw luxury brands scale back their rate of expansion after a decline in sales, whereas in Pacific, demand from new international retailers remains strong,” said Dr Chin.
“Many international retailers remain very sensitive to location, driven by flight-to-quality. The coming quarters are likely to see investors re-focus on core properties in major shopping districts. With the current challenging climate, management expertise and knowledge are key issues for retail investors,” he added.