Direct real estate investment dips 29% year-on-year as external market conditions influence capital strategies.

Real estate investment in Asia Pacific moderated in the third quarter, with investment decisions influenced by a variety of macroeconomic factors.

According to JLL’s Asia Pacific Capital Tracker 3Q22, investment volumes declined by 29% year-on-year in the third quarter, reaching US$28 billion.

This was due to a combination of fewer trades in major markets, rapid currency depreciation against the US dollar and the rising cost of debt sparked by an aggressive tightening of interest rates in the US.

“Conditions in global real estate markets have changed throughout the year and, as a result, investors active in Asia Pacific have adopted a more cautious approach to capital deployment in the third quarter. Despite the ongoing macroeconomic challenges, inflationary concerns, and the rising cost of debt, investors we are speaking to remain broadly positive on Asia Pacific real estate and maintain medium to longer term plans to continue to expand their footprint in this region,” says Stuart Crow, CEO, Capital Markets, Asia Pacific, JLL.

Throughout the third quarter, activity was robust in Australia (US$7.3 billion), up 15% year-on-year supported by several high-profile office transactions in Sydney and Melbourne. Korea remained one of the region’s most resilient markets in the third quarter, with US$6.4 billion in transactions closed, representing a modest 8% year-on-year decline. Singapore, which reported US$2.3 billion for the quarter, was up by 116% year-on-year, on the basis of large office transactions, coming off a low base in the corresponding period in 2021.

A depreciating yen pushed volumes down in Japan to US$4.6 billion, as weak activity across most sectors led to a 61% year-on-year decline. Volumes in China (US$3.3 billion) continued to decrease, down 55% year-on-year in the third quarter due to the lingering impact of Covid policies. Hong Kong (US$720 million), down 75% year-on-year, also felt the pinch of fewer en-bloc transactions and the broader impact of external factors.

Sector-wise, office transactions moderated regionally to US$14.4 billion, representing a year-on-year decrease of 33%, influenced by sluggish volumes in Japan and China coupled with softer sentiment amid a widening pricing gap between buyers and sellers. Logistics and industrial transactions also declined by 52% to US$4.6 billion as rate hikes and the rising cost of debt prompted price corrections in several markets.

Retail investment in Asia Pacific was muted at US$4.5 billion, declining by 13%, with dampened consumer sentiment and discretionary spending outlook leading to less investor interest.

Hotels remained the region’s most consistent performer, reaching US$8.4 billion to date in 2022 on the back of a recovery in international and domestic tourism, which is driving global and regional investors into the asset class.

“When considering the high transaction base in 2021 and the combination of economic, policy, and geopolitical factors, the softening of third quarter volumes is not surprising. Investors are understandably treating capital deployment strategies differently given the fluid external environment and we’ll likely see some decision delays in the fourth quarter while awaiting more market clarity on the state of the global economy. In the interim, we expect the level of re-pricing to sharpen and the price discovery phase to extend throughout next year,” says Pamela Ambler, Head of Investor Intelligence, Asia Pacific, JLL.

Read more in the Asia Pacific Capital Tracker.