Commercial investors who adopted a 'wait and see' approach in the first half of 2020 are now exploring options to deploy their capital as market activity resumes across some areas of the Asia Pacific, according to experts. 

New data from Knight Frank indicates commercial transaction volumes in Asia-Pacific fell 41 per cent year-on-year to US$55bn in the first six months of 2020, while in Q2, transactions were down 14 per cent compared to Q1 across the region. 

But Knight Frank Asia Pacific Head of Capital Markets Neil Brookes said there had been a shift as markets began to reopen.

At a glance: 

• New analysis from Knight Frank has found commercial transaction volumes in Asia-Pacific fell 41 per cent year-on-year to US$55bn in the first six months of 2020.
• The data also indicates transactions were down 14 per cent compared to Q1 across the region.
• According to Knight Frank, Australia remains a key market for Singapore, with cross-border transaction volumes up 72 per cent year-on-year in 1H20, though volumes remain low at US$1.39 bn.

“The physical restrictions on movement and economic uncertainty have had a material impact on capital markets in the first half of 2020,” he said.

“Deal activity has been sporadic at best as investors adopted a wait-and-see approach in the first half of this year, with equity-based investors, in particular, seeking a discount before entering the market.”

“However, as economic activity resumes in some markets in the region, investors are now exploring options to deploy their capital.

"Even under challenging circumstances, there is ample capital seeking medium to long-term investment opportunities in the region, particularly in core, safe-haven markets."

Knight Frank Asia Pacific Head of Capital Markets Neil Brookes. Source: Knight Frank

Singapore

According to Knight Frank, Singapore domestic commercial transaction volumes fell 87 per cent year-on-year in 1H20 to US$0.55bn.

However, cross-border transactions were less affected by the pandemic, with US$7bn transacted to overseas investors - just 12 per cent lower than for the same period last year.

The research also indicated Australia remains a key market, with cross-border transaction volumes from Singapore up 72 per cent year-on-year in 1H20, though volumes remain low at US$1.39 bn.

Mr Brookes noted Singaporean government-linked companies had remained active investing in Australia this year, executing their long-term strategies of moving into core logistics and office assets.

“Accommodative monetary policies will ensure that institutional-grade assets with strong tenant covenants and long-term leases will continue to be in demand," he said.

Knight Frank Singapore Head of Capital Markets for Land & Building, International Real Estate & Industrial, Daniel Ding said the amount of interest in overseas gateway cities like Tokyo, London and Sydney could mean an increase in cross border transactions once international business travel is reinstated. 

“With the amount of dry powder available, what most investors are waiting for is for the level of uncertainty to ebb before deploying," he said.

Hong Kong. Source: Depositphotos

Hong Kong

Knight Frank research indicates Hong Kong outbound capital investing into commercial assets fell 66 per cent year-on-year in 1H20 to US$3.1bn.

However, in Q2 alone, transaction volumes were up 48 per cent quarter-on-quarter compared to the first three months of this year, suggesting a strong appetite for overseas assets.

Knight Frank Executive Director and Head of Commercial for Greater China, Paul Hart, said Hong Kong investors continued to show a keen interest in diversifying their portfolios overseas

“Despite the globalisation of COVID-19, we have seen Hong Kong outbound capital continue to explore real estate investment opportunities, with London and Eastern seaboard Capitals in Australia continuing to be the most popular locations," he said.

"Once travel restrictions lift, we expect that Hong Kong outbound investment will increase.”

Emerging trends

Corporates adopt sale & leaseback

Mr Brookes said companies, institutions and governments were increasingly selling real estate assets and leasing them back, as a way of shoring up their balance sheets in the face of the economic volatility caused by the coronavirus.

"Enquiries have spiked from companies that own their corporate real estate across many sectors, including automotive, electronics, media, retail and technology," he said.

Private capital steps up

Knight Frank analysis reveals that Asia-Pacific focused private equity funds had an estimated US$38bn of capital ready to deploy in Asia-Pacific as at December 2019, well above the US$5bn that was raised in 2007 and 2008 before the Global Financial Crisis.

For ultra-high-net-worth individuals and family offices in the region, investment into commercial properties rose by 69 per cent in the period from 2017 to 2019, compared to the three years prior. 

Mr Brookes said many buyers were waiting for distressed opportunities to arise, expected later in the year as the economic impact of the virus hits home.

"While some vendors are offering discounted pricing on assets, this varies significantly depending on sector, grade and location," he said. 

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