DTZ+Investment+Market+Update+Asia+Pacific+Q3+2011

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Investment Market UpdateAsia Pacific Q3 2011

Bounce back in China & Japan

31 October 2011

Author

David Green-MorganHead of Asia Pacific Research+61 (0)2 8243 [email protected]

Contacts

Hans VrensenGlobal Head of Research+44 (0)20 3296 [email protected]

Total commercial real estate investment volumes rosemarkedly in the third quarter of 2011 following two consecutivequarterly falls. The value of transactions rose by 62% to reachUS$46 billion (Figure 1). The two biggest markets of Chinaand Japan witnessed quarterly increases of almost 100% and200% respectively.

Mixed use development sites in China continue to dominate

transactional activity, making up over half of all transactions inthe third quarter. Indeed China is maintaining and increasingits regional influence with 69% of all transactional activity inthe second quarter up from 57% in Q2.

Cross border activity doubled in absolute terms this quarter,reaching almost US$5 billion. The majority of this investmentwas within Asia Pacific, intra regional flows accounting foralmost US$4.5 billion.

The public sector continues to be the largest seller of

commercial real estate in Asia Pacific, with corporations thelargest purchasers this quarter.

Activity remains on track to match the 2010 full yearperformance of US$158 billion, as we forecast in this year’sMoney into Property Asia Pacific report. A fourth quarter ofUS$40 billion or more will ensure another year of growth forthe investment market in Asia Pacific.

Figure 1

Asia Pacific investment volumes Q3 2009 – Q3 2011

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20

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40

50

60

Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011

US$ bn

China Japan Australia Singapore Hong Kong Other

Source: DTZ Research



Investment Market Update

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Figure 2

% change in investment volumes, Q2 2011 –Q3 2011196%

156%

98%

61%

36%

8%

-32%-43%

-70%

62%

16%


Figure 3

Investment activity by sector, Q2 2011 & Q3 2011

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Q2 2011 Q3 2011 Q2 2011 Q3 2011

Asia Pacific Asia Pacific (excl China)

US$ bn

Mixed-use Office Retail Industrial Other/Unknown Source: DTZ Research

Volatility remains the one consistent theme in theAsia Pacific investment market with developingmarkets continuing to plough their own furrow whiledeveloped locations remain susceptible to globalevents.

China mixed use development sites increasevolumes

Once again this quarter mixed use developmentsites in China have dominated transactional

volumes. Over US$27bn of sales this quarter weremixed use development sites. Most of this overUS$27 billion occurred in China. This is more thanhalf the overall APAC figure of US$46 billion(Figure 3).

Only US$1 billion was allocated to mixed useschemes in the rest of Asia Pacific, with themajority of those being existing assets rather thandevelopment sites.

Outside of mixed use deals (US$27 billion) offices

were the most popular sector with US$7.0 billionworth of activity, followed by the retail (US$5.7billion) and industrial (US$4.7 billion) sectors.

Removing China from the statistics illustrates theimpact APAC’s most liquid market has on theoverall regional performance. In Q2 2011investment transactional activity in China made up56% of all Asia Pacific transactional activity, whilein Q3 that had increased to 69%.

Investor activity up despite global economicwoes

Total commercial real estate investment volumes inAsia Pacific rebounded by more than expected inthe third quarter of 2011 after two consecutivequarterly falls. The value of transactions increasedby 62% to US$46 billion from US$28 billion in thesecond quarter (Figure 1).

The US$46 billion is the second highest quarterlyfigure in our database, beaten only by the almostUS$50 billion recorded in the final quarter of 2010.There were significant percentage increases inChina (98%), Hong Kong (61%) and Taiwan (156%)and an almost 200% rise in transaction volumes inJapan as the market recovers from the earthquakeearlier in the year (Figure 2).

Volumes declined in only three markets during thequarter, Australia, Singapore and the alwaysunpredictable India.

Two deals, one in China (US$9 billion) and one inHong Kong (US$2.5 billion) significantly boosted thequarterly performance. Without these two dealsthere would have been a more modest 23% rise inoverall transactional volumes (Table 1).

Compared to 12 months ago investment volumescontinue to improve, 20% up on Q3 2010. This is asignificant improvement on Q1 and Q2 2011 whichonly showed a slight increase in volumes on 12months before.



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Governments across the region look to sellassets

Once again this quarter the public sector was thelargest net seller of commercial real estate in theregion, as they have been consistently for the lastthree years.

The majority of these government sales occur inChina, where the sales are long leasehold ratherthan freehold. The pace of divestment from the

public sector around the region is unlikely to slowgiven the extra burdens currently being placed ongovernments by the global economic crisis.

Conversely corporations were the largest purchasersof property this quarter investing over US$15 billion,more than double their next nearest competitor whichwas private property companies. Mostlyconcentrated in China.

The two significant deals in China and Hong Kongthis quarter has pushed the average deal size back

above the US$60m mark (Figure 4).

Cross border investment increases in absoluteterms

Despite only increasing slightly in percentage termsthe amount of cross border activity more thandoubled in absolute terms in Q3 2011 (Figure 5 &Table 2), although money coming into Asia Pacificfrom other parts of the world dropped below US$1

Figure 4

Investment activity by deal size, Q3 2007 –Q3 2011

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0%

10%

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Q32007

Q42007

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Q12010

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Q12011

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Q32011

US$ bn

Under 10m 10-20m 20-50m

50-100m 100-200m 200-500m

500-1,000m 1bn+ Overall Average deal size


Figure 5

Investment activity by investor origin, Q3 2007 –Q32011

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10%

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Q32007

Q42007

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Q22008

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Q42009

Q12010

Q22010

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Q42010

Q12011

Q22011

Q32011

Domestic Cross Border


billion for the first time in five quarters.

Much more active has been intra regionalinvestment activity which this quarter passed theUS$4 billion mark for the first time since the thirdquarter of 2007. This quarter cross borderinvestment activity has been heavily influenced bythe purchase of Festival Walk in Hong Kong byMapletree from Singapore for almost US$2.5 billion.

Outlook

This quarter’s transactional volumes buck thegeneral investor sentiment in the region. Despitefurther attempts to control lending in China (althoughofficial policy may be shifting), liquidity and theappetite for commercial property development sitesremains buoyant.

Despite a choppy 2011 it is possible that we will seesufficient deal flow in the final quarter of this year tomatch the 2010 full year result of US$158 billion, aswe forecast in this year’s Money into Property

1

report. We would need a US$40 billion Q4 result to

match the 2010 performance which coincidentally isthe average of the quarterly results over the last twoyears.

While this is entirely possible, we would caution thatthe downside risks posed by numerous global,regional and domestic events are more numerousthan any possible upside surprises.

1 Money into Property Asia Pacific 2011 “Engine of world growth,” DTZ Research, May

2011



This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take noresponsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred towithout prior approval. Any such reproduction should be credited to DTZ.

© DTZ October 2011

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Table 1

Significant deals

Address Town/City Property type Purchaser Vendor Price (US$m)

Binhai Avenue / Jinggangshan RoadDevelopment Site

Shandong Mixed use

DatangShandongElectric PowerCo

QingdaoTerritoriesResources Bureau

$9,193

Festival Walk Hong Kong RetailMapletreeInvestments

Swire (FestivalWalk HoldingsLtd)

$2,484

Roppongi Hills Gate Tower Tokyo Office Mori Building Mori Hills REIT $440

Suncorp Building Sydney Office MemcorpCommonwealthProperty Fund

$420

Kallang Basins Singapore IndustrialMapletreeIndustrial Trust

JTC $322

Jia Ruil International Plaza Shanghai Office SOHO ChinaShanghai LongCang Real Estate

$390


Table 2

Investment market

Q32010

Q42010

Q12011

Q2

2011

Q32011

Yr to Q12011

Yr to Q22011

Yr to Q32011

Total investmentvolume (US$ bn)

38.22 49.87 44.16 28.13 45.70 159.73 160.38 167.87

Total purchasingactivity (US$ bn)

Offices 9.57 8.99 13.33 6.78 6.99 38.71 38.68 36.11

Retail 10.55 10.07 5.85 3.75 5.75 32.83 30.22 25.42

Industrial 2.94 3.64 7.23 2.52 4.70 16.09 16.33 18.09

Mixed Use 13.89 25.47 16.94 13.62 27.46 67.79 69.93 83.50Other 1.27 1.70 0.80 1.45 0.79 4.30 5.22 4.75

Domestic 33.97 45.41 40.48 25.67 40.76 144.84 145.53 152.32

Cross Border 4.24 4.46 3.69 2.46 4.94 14.88 14.86 15.55


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