APAC office investment sales down 48% to USD21.6b in H1

But volumes rose 17% QoQ due to a pick-up in Shanghai, Beijing and Singapore. 

Tracking yields and capital values across APAC has become harder due to lower deal activity. Over H1 2020, based on data from Real Capital Analytics (RCA), aggregate investment transactions in the office sector decreased by 48% YOY in the 19 urban markets that Collieres tracks closely, to USD21.6 billion. However, with USD11.7 billion in completed transactions in Q2, volumes increased by 17% QOQ.

Here’s more from Colliers:

A recovery in activity was most evident in China. Office transactions in Shanghai totalled USD3.5 billion in Q2 2020, up fourfold from Q1 and up slightly YOY. Similarly, Beijing recorded office deals of USD2.0 billion in Q2; this was double the level of Q1 though down 30% YOY. In contrast, investment activity in Shenzhen, Guangzhou and Chengdu was very modest.

Based on RCA data, office investment sales in Singapore amounted to USD1.4 billion in H1 2020. This represented a 42% YOY decline from the bumper total of USD2.4 billion for H1 2019, which had included the 30 Raffles Place and Frasers Tower transactions. However, Q2 saw a return to big-ticket activity.

The largest office deals during Q2 were Alibaba’s purchase of a half-stake in AXA Tower, valuing the property at SGD1.68 (USD1.2) billion, and Shun Tak Holdings’ purchase of the 30% stake it did not already own in TripleOne Somerset, the whole of which was valued at SGD1.14 (USD0.8) billion. Prime and Grade A office properties in Singapore now offer an average yield of about 3.8%.

Pricing in the Tokyo and Osaka office markets remained largely flat, supported by high pre-commitments and modest rent growth. However, previously active overseas investors have all but retreated from the market, apart from those with existing local operations. We believe that the yield on Tokyo Grade A office properties averaged 3.5% at the end of H1, barely changed from six months before.

In Hong Kong SAR, Colliers’ figures show a 69% YOY drop in office transactions in Q2, to HKD12.5 billion (USD1.6 billion). A wide gap between bid and ask prices persists, partly because few owners are under pressure to sell in an environment of very low interest rates. Although en-bloc office deals have been few, strata-title office prices fell by a further 7.0% over Q2, to HKD21,800 (USD2,813) per square foot on average. We now judge that the yield on Grade A office assets in Hong Kong averages 2.8%.

Transaction activity in most emerging Asian investment centres was very limited over H1 2020. Real estate transactions in India fell sharply as a result of the national lockdown enforced by the government to control COVID-19, although a few deals negotiated prior to the outbreak were concluded during Q2. Bangkok and Jakarta saw almost no transactions in the office sector in H1. 

In Australia, capital markets broadly went into hibernation in Q2 with buyers and sellers choosing to delay deal activity until greater certainty around COVID-19 had been established. Australia’s early relative success at containing the virus bred a sense of long-term optimism in late Q2 as staff began to return to offices in the Sydney and Melbourne CBDs, but this phenomenon was abruptly halted in July as a second wave of COVID-19 infections returned Melbourne to lockdown. In the absence of deal activity, yields stayed flat over the quarter. Yields in Sydney CBD stand average 4.51% for Premium grade and 4.86% for A-grade property, while for Melbourne CBD the corresponding figures are 4.54% and 4.86%.