Commercial real estate deal volumes in Asia Pacific have been holding steady as investors have shown a keen interest in the region due to its rapid return to office environments. The region has witnessed a string of recent high-profile transactions, while higher-end hotel development projects have been dominating the construction pipeline with record project counts.
This positive shift in investors and developers’ interest in the region marks a recovery from a weakened sentiment that was prevalent for the past few years due to inflation and increasing interest rates, which had caused many investors.
Investment volumes in Asia Pacific totaled $26.8 billion in Q2, slipping by just 1% from the first quarter, according to JLL’s Asia Pacific Capital Tracker. This, however, was a 17% decline YOY.
The region has been returning to the market, encouraged by the stabilizing outlook for interest rates and the robust return to office.
“Vendors are closely watching upcoming high-profile sales that are going to give them more clarity about the market. The outlook is for improving conditions towards the end of the year as inflation moderates and the start of the interest rate unwinding cycle comes into sight,” said Pamela Ambler, head of investor intelligence, JLL.
The near-record $404 billion of capital in funds is yet to be deployed worldwide. A significant portion of this, around $67 billion, has been earmarked for Asia Pacific, as reported by JLL. JLL expects investment volumes in 2024 to compare to pre-pandemic levels of $176.6 billion in 2019 as well as the post-COVID recovery level of $177 billion seen in 2021.
HOTEL PIPELINE
Hotel construction pipeline in Asia Pacific has been at an all-time project high in the second quarter. According to the latest data from Lodging Econometrics, there were 1,936 projects/ 401,766 rooms in the total pipeline at the close of the second quarter. The pipeline was mainly dominated by luxury, upper upscale and upscale projects, which also saw record project counts, with 228 projects/46,305 rooms, 348 projects/78,336 rooms, and 426 projects/92,702 rooms, respectively.
The dominance of higher-end development projects reflects developers’ and investors’ confidence in the market.
With 480 projects/57,161 rooms, India led among the countries with the biggest pipeline in the region (barring China) and represented 25% of the projects in the total pipeline. This was followed by Vietnam (237 projects/85,168 rooms), Thailand (156 projects/39,199 rooms), Indonesia (207 projects/34,605 rooms) and Japan (164 projects/33,183 rooms). Together, these five countries accounted for 64% of the projects in Asia Pacific’s pipeline.
Among the cities, Bangkok had the biggest construction pipeline with 65 projects/17,088 rooms, followed by Kuala Lumpur (41 projects/11,879 rooms), Jakarta (48 projects/9,409 rooms), Melbourne (43 projects/8,252 rooms) and Phuket (31 projects/8,370 rooms).
With 280 projects/60,566 rooms, Marriott had the largest pipeline in the region, along with Accor (206 projects/47,052 rooms), IHG (164 projects/34,227 rooms), Wyndham (134 projects/31,606 rooms) and Hilton (94 projects/21,455 rooms).
Excluding China, Asia Pacific had 172 hotel projects/26,748 rooms open in the first half of the year, with another 227 new hotel projects/44,514 rooms projected to open in H2, bringing the total forecast for new hotel openings to 399 hotels/71,262 rooms in 2023, according to Lodging Econometrics.
In 2024, new hotel openings in the region (excluding China) will total 92 new hotel projects/79,649 rooms, with another 318 new hotel projects/63,153 rooms anticipated to open in 2025.
RETURN TO OFFICE
The high level of return to the office in Asia Pacific has encouraged investor interest in the region. Office attendance has returned to 110% in some Asian cities, indicating that employees are spending more time at offices than before the pandemic. Compared to Asia Pacific, attendance in Europe and the Middle East has returned to up to 90% and 60%, respectively, JLL data has revealed.
Leasing demand has been strongest in newer buildings, with rent increasing in some instances. Net effective rents in Seoul were up 16.5% in Q2 compared to 2022, while rent in Sydney CBD rose 7.8% in the same period.
“Clients are prioritizing employee wellness, amenities and sustainability, and buildings that meet these requirements are outperforming the rest of the market in occupancy and rent growth. There are no signs of this trend abating,” said Jeremy Sheldon, head of markets, Asia Pacific, JLL.
AUSTRALIA LEADS RECOVERY
In 2024, recovery in commercial real estate transactions is expected to be led by Japan, China, Korea and Australia, according to JLL. These markets have demonstrated the highest liquidity, with $146 billion, $129 billion, $108 billion and $86 billion worth of sales, respectively, in the last four years.
Despite China and Japan accounting for the biggest shares in sales volume, Australia, Korea and Singapore have recorded more and bigger deals in the pipeline, indicating that vendors are interested in engaging and selling, JLL said.
In Australia, 37% of deals between 2019 and early 2023 have been with cross-border acquisitions, and there has been market “openness” and counter-cyclical office opportunities. This makes it a must-have destination for global portfolios, said Ambler.
“Australia’s market fundamentals – backed by robust demographic trends and economic prospects — high levels of transparency, maturity and a highly institutionalized real estate market will continue to set Australia apart from the rest of the region in the long run,” Ambler said.
