Investors continue exodus from Asian property: report
Investors from Asia and beyond continue to desert Asian property markets, according to the latest data published by MSCI Real Assets (formerly Real Capital Analytics) on August 2 in its APAC Capital Trends, Q2 2023 report.
Asian investors allocated $45.2 billion into their domestic property market in the first half of this year, down 44% from the $80.6 billion that was allocated one year earlier, while international investors allocated $4.8 billion, 67% less than the $14.8 billion they had spent one year earlier.
OFFICES OUT
The most recent data marks a significant quarterly fall for Asia’s office sector, with total investor flows in Q2 2023 dropping 56% to $10.7 billion, down from $19.1 billion a year ago. The fall brings the total allocations in the first half of the year to $23 billion, 50% lower than one year earlier.
Peter Hobbs, managing director of private markets in London at bfinance, many of whose institutional clients are based in Asia, said that the sector was continuing to suffer the fallout from changes of use after the pandemic, as well as oversupply.
“Offices were adversely impacted by concerns over obsolescence and more classic problems of high supply in Tokyo, Melbourne, and Sydney — especially for B-grade product,” he said, noting data from the Property Council of Australia that shows Grade B office vacancy rates in Melbourne currently stand at more than 20%.
Retail also suffered big falls in the latest quarter: the $5.7 billion allocated to the sector in Q2 2023 was down 49% from a year earlier. Investors were kinder to the industrial sector: its $8.8 billion was only 14% lower than a year ago.
Meanwhile, the residential sector experienced positive investor flows for the quarter, with its $3.6-billion allocation marking an increase of 16% compared to the previous year.
“The sector has better supply and demand fundamentals. This is particularly the case in the large Japanese market, which has also benefited from more accommodative monetary policy [in Japan] over the past 18 months,” said Hobbs.
SINGAPORE SLUMP
In Q2 2023, Japan, with $7.5 billion in flows, returned to the top spot for Asian property investors, having been second to China in Q1. South Korea was second, with $6.7 billion; and China was third, with $6.1 billion.
The steepest fall in investor allocations in percentage terms was in Singapore, where investor flows reduced 65% from $2.8 billion in Q1, to $1.8 billion in Q2. However, Q2 2022 was a record for allocations into Singapore, and the fall against the five-year pre-pandemic average was a more modest 31%.
Benjamin Chow, head of real asset research in Asia for MSCI, told AsianInvestor that falling allocations were a function of subdued activity at the top of the market in terms of deal size, while the total number of deals over $10 million actually increased. “The bigger office towers on the market have yet to find buyers,” he said.
NEIGHBOURLY LOVE
Positive signs for the sector were provided by cross-border flows, or allocations by Asian investors into countries other than their own. These allocations bucked the trend of investor outflows in the first half of the year, increasing 3%, to $12.2 billion from $11.7 billion a year earlier.
Chow pointed out that resilient demand from investors in Singapore and Japan was crucial to the turnaround.
“Singaporean investors remained active within the quarter across Japan and South Korea, while Japanese investors, who have been one of the more important capital sources globally this year, also struck a couple of notable deals in Australia in Q2,” he said.
“By contrast, ex-APAC investors were largely absent from a number of historically important markets, including Australia, Singapore, and Japanese offices,” Chow noted.