Hong Kong investors shelled out US$4.9b for cross-border assets

They're the second biggest spenders in Asia.

Investors are allocating more capital to real estate worldwide, with Asian investors now accounting for five of the 10 biggest cross-border spenders, according to JLL. Inter-regional investment reached US$19.5b in Q2 2017, up 71 per cent from the same period last year.

Globally, China was the third biggest source of cross-border capital into real estate in the first half of the year at US$6.2b, behind Germany and the UK. After China, Asia’s biggest spenders were Hong Kong (US$4.9b), Singapore (US$4.1b), South Korea (US$1.9b) and Japan (US$1.6b). Almost all of their capital targeted the world’s three largest and most liquid real estate markets, with the U.S receiving US$10b, the UK pocketing US$6b, and Germany US$2b.

In what could be the biggest single asset deal of the year, Chinese conglomerate HNA acquired 245 Park Avenue, a Midtown office tower, for US$2.21b in May. “The purchase underscores the continued prominence of Chinese capital in global real estate markets despite capital controls,” adds David Green-Morgan, JLL’s Global Capital Markets Research Director. “Given this is the first wave of Chinese capital going global, it remains concentrated on the biggest, most liquid markets in the world.”

While Asian investors are looking overseas, they also continue to hunt for deals closer to home, with continued interest in office and logistics assets across the region. Domestic investments amounted to US$49b in Asia Pacific in Q2. Domestic demand continues to drive the Chinese real estate market in particular, but foreign buyer interest is on the rise, accounting for a third of total transaction volumes in Q2.

“With the capital curbs making it harder to invest outside of China, domestic investors will aim to invest more inside the country,” says Green-Morgan. “Domestic developers in particular will become a new pool of buyers for existing assets as they seek to deploy excess capital. With rising prices in Tier 1 cities, investors are starting to look at Tier 2 cities in China for good retail and logistics assets, as well as those with potential for conversion, such as retail into office space, or hotels into serviced apartments.”

Looking globally, the office sector remains the top option for investors, however, the industrial sector has become the next most sought-after asset, with sustained demand leading to US$24b invested in Q2 - a 28 per cent surge from Q2 last year.

“There is huge demand for scale in the industrial and logistics sector globally,” explains Green-Morgan. “The more mature markets – the US, UK, Germany, Canada and Japan – tend to offer that.”

In Asia Pacific, total transaction volumes amounted to US$31b in Q2 2017, up six per cent from Q1. Investment volumes across the region were US$61b in the first half of 2017, versus US$54b in H1 2016.

Global real estate transaction volumes came in at US$153b for Q2 2017, up seven per cent from Q1. The total for the first half of 2017 was US$297b, up from US$290b for the same period last year.