Hyland: A lot of the deals around Asia Pacific have been opportunistic investments, where prices have corrected or where there is an angle to add value to the property (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Investment activity in Asia Pacific has picked up since late last year. In November, the 11-storey VisionCrest Commercial on Penang Road in Singapore was purchased for $450 million by a consortium of Singapore-listed Metro Holdings, private equity firm TE Capital Partners and US real estate investment firm LaSalle Investment.
In South Korea, Samsung SDS Tower was sold to KB Asset Management for US$630 million ($860 million) last November, marking the largest deal in the country in 2023.
Another late-year deal was the $238 million purchase of Hotel G by The Ascott and CapitaLand Wellness Fund, announced on Jan 9. The hotel is being refurbished and will reopen in mid-2024 as lyf Bugis Singapore.
Read also: Greg Hyland joins CBRE as head of capital markets Asia Pacific
In early February, Melbourne-based fund manager Fawkner Property purchased Stockland Nowra shopping centre in Sydney, Australia, for A$103 million ($90 million).
While activity has been picking up, it will take some time before that translates into actual transactions, says Greg Hyland, CBRE head of capital markets for Asia Pacific. Incidentally, CBRE brokered the above-mentioned deals.
“Any acceleration in investment activity will take place in 2H2024,” he adds. “It’s just the nature of deals being done.”
Based on capital market flows, the favoured sectors in 2024 are living (including multi-family, co-living, student and senior housing), logistics and hospitality, says Hyland.
Hotel G was purchased for $238 million by The Ascott Ltd and CapitaLand Wellness Fund (Photo: CBRE)
Japan has continued to outperform, according to CBRE, and remains the top target for cross-border real estate investment in Asia Pacific for the fifth consecutive year. Investors are focusing on Tokyo, Osaka, and other major regional cities. “The Japan market is supported by accommodative monetary policy and adequate funding,” Hyland says.
He notes that the hospitality sector has been particularly robust in Japan. Last year, Japan saw 25.06 million visitors, or 79% of the pre-pandemic level in 2019, according to the Japan National Tourism Organisation (JNTO). In January, there were over 2.688 million international visitors to Japan, 79.5% higher y-o-y, based on JNTO statistics. Hotel room rates soared in Japan to an average rate of JPY21,102 ($188), up 8.2% m-o-m, and marked the first time that average room rates have crossed JPY20,000 a night, according to industry tracker STR.
Last December, US investment group Blackstone Inc purchased a hotel in Kyoto from Goldman Sachs Group. The 158-room Moxy Kyoto Nijo was purchased for US$54 million. Blackstone is said to have acquired at least 12 hotels for its Japan portfolio in the past two years.
In July 2023, a consortium of Goldman Sachs Asset Management, Abu Dhabi Investment Authority and Singapore’s SC Capital Partners acquired a portfolio of 27 resort hotels in Japan for about US$900 million.
As of August 2023, foreign investors have pumped US$2 billion in hotel deals, surpassing 2022’s investment figure, according to MSCI Real Assets.
The other sector in Japan that investors have been keen on is the digital economy, with an uptick in interest in the data centre space.
Singapore sovereign fund GIC was active in Japan last year, acquiring a portfolio of six warehouses across Japan from Blackstone for US$800 million in a deal brokered by CBRE in April 2023. It was followed by the acquisition of a warehouse in Yatomi city in Greater Nagoya in July, and two logistics facilities in December at Takatsuki city in Greater Osaka and Tosu city in Greater Fukuoka. Japanese developer Daiwa House Industry developed all these facilities.
VisionCrest Commercial on Penang Road was purchased for $450 million by a consortium of Singapore-listed Metro Holdings, private equity firm TE Capital Partners and US real estate investment firm LaSalle Investment (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Singapore, the second favoured investment destination, represents “a safe haven” with a stable currency and business-friendly environment, says CBRE’s Hyland. Interest rates have come down in Singapore compared to the middle of 2023. “It has made it easier to do business here,” he adds.
Office vacancy rates in Singapore are still low, notes Hyland. With the new Grade-A office supply entering the market this year and the potential secondary spaces surfacing, CBRE Research predicts that the overall vacancy rate in the Core CBD market could increase to about 6% to 7%, depending on the take-up rate of the new projects. Vacancy rate stood at 3.5% at the end of 2023.
In Singapore, the retail and industrial sectors have been relatively robust. “Singapore has proven itself to be relatively resilient compared to other Asia Pacific locations,” says Hyland. “This could mean that some of the capital may look elsewhere because prices in other locations could have adjusted more so than Singapore, potentially offering superior near-term returns.”
Even though Singapore is a favoured destination, deal sizes are still relatively small by absolute volume, adds Hyland. “It’s harder for people to get into Singapore just purely because of the size of the place. And it’s a generally competitive market, with lots of capital chasing assets.”
Singapore-listed property group City Developments Ltd acquired Sofitel Brisbane Central for A$177.7 million (Photo: City Developments)
Australia is the next favoured market in the region. According to Hyland, the country’s industrial and logistics sector has been the best-performing in Asia Pacific in terms of rental growth. In Australia, the industrial and logistics sector recorded the highest deal flow of any sector in 2023, at A$6.3 billion, based on figures from CBRE Research.
Investment transactions in Australia dropped by 31% y-o-y in 2023 to A$24.1 billion, as repricing in some sectors continued to limit deal flow. Australia’s industrial and logistics sector saw prices held up by strong rental growth. However, investment volume declined 13% y-o-y. The office sector, on the other hand, saw a 65% plunge in sales volume in 2023, while retail saw a 21% drop in investment sales over the same period.
The one positive note was Australia’s living and hotel sectors, which saw transaction activity increase by 39% and 11%, respectively, according to CBRE Research. “Investors bought into the strong fundamentals of these asset types,” says the report.
In March last year, Singapore-listed property group City Developments Ltd (CDL) acquired Sofitel Brisbane Central for A$177.7 million ($159.2 million) or A$427,000 per key. The 416-key, five-star luxury hotel is Brisbane’s largest single-branded hotel, marking CDL’s third hotel acquisition in Australia. CBRE brokered the deal.
Meanwhile, Australian property group Mirvac announced in June 2023 that it had established a new A$1.8 billion built-to-rent venture with well-capitalised cornerstone investors, including the Clean Energy Finance Corp. Mirvac will retain a 44% interest in the venture brokered by CBRE.
In November, Australian gaming operator The Star agreed to sell its Sheraton Grand Mirage Resort Gold Coast for A$192 million in a deal brokered by CBRE. The hotel’s new owners are said to be entities owned by the Karedis and Laundy families. The Karedis family reportedly made its fortune via liquor stores and now owns property group Arkadia, which is invested in shopping malls and hotels. The Laundy family runs a hotel chain and a series of pubs.
Samsung SDS Tower was sold to KB Asset Management for US$630 million last November, making it the largest deal in South Korea (Photo: CBRE)
CBRE’s Hyland sees the South Korean real estate market as an “interesting” investment opportunity. Even though there were credit issues, he says the underlying fundamentals in many sectors are relatively robust.
Like Singapore's, South Korea’s office sector remains a landlord’s market. “Leasing activity will be constrained by tight availability,” says CBRE. Availability in Seoul will be extremely tight, with new office supply due to come on stream in 2024, which is already primarily pre-committed, pushing down vacancy to near historical lows, adds CBRE.
Last October, Majestar City Tower 1, an office block in the Gangnam business district, was purchased by a REIT managed by South Korean fund manager Koramco for KRW520 billion (about $521 million). The seller was US investment manager Invesco Real Estate, and CBRE brokered the deal.
The most significant office deal in South Korea last year was the sale of Arc Place, a prime office building in Gangnam for KRW750 billion in October. The seller was Blackstone, and the buyer was also Koramco.
Melbourne-based fund manager Fawkner Property purchased Stockland Nowra shopping centre in Sydney, Australia, for A$103 million in February (Photo: CBRE)
“A lot of the deals around the region have been opportunistic investments, where prices have corrected or where there is an angle to add value to the property,” says CBRE’s Hyland.
Across the region (except China), inflation, particularly construction inflation, has made developing new products quite expensive. Bringing in new supply becomes more challenging when overlaid with higher interest rates. “There will be gaps in supply as people are more reluctant to take on development risk,” says Hyland. “We’ll start to see a deceleration in supply, which sets these markets for a decent recovery in 2025–2026.”
Hyland sees buying opportunities emerging in Hong Kong, especially the office sector, where rents have declined, coupled with new supply entering the market. “Funding costs have also increased,” he says. “A lot of the value drivers are negative at the moment. But that presents an amazing entry point, and Hong Kong always bounces back.”
Hong Kong’s rollback of the residential property cooling measures in February is also likely to have a positive impact on the property market. “Hong Kong has always reinvented itself, and I believe it will continue to remain relevant, and over the long term, it will come out stronger,” says Hyland. “We’ve seen it multiple times: During the handover of 1997, Sars in 2003 and the Global Financial Crisis of 2008, people wrote Hong Kong off. It will evolve and will always be an important centre of commerce.”