Hong Kong still top APAC real estate investment market in H1

However, transactions fell 46% YoY to $47.06b.

Hong Kong maintained its position as the top Asia Pacific (APAC) investment market for the first half of the year despite a 46% YoY fall in transactions volume to $47.06b (US$6b), according to a report by Real Capital Analytics (RCA).

The comparative extent of the decline was magnified by last year’s record deal activity during the same period, with the second quarter of 2018 being the strongest quarter for investment during the last 12 months.

RCA noted that investors have switched their attention from financial centers such as Central to suburban neighborhoods such as Hong Kong Island and beyond to Kowloon and the New Territories. Office yields in more central areas declined to 2.6% YoY on average in the second quarter compared with the 2.4% YoY average office yield currently achieved on Hong Kong Island.

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“Much of the investment activity in the office sector in the second quarter of this year took place in locations such as Kowloon East and suburban markets on Hong Kong Island. This is a change from last year when there was a frenzy of deals concentrated in the Central financial district,” said David Green-Morgan, RCA’s managing director for APAC.

Total Asia Pacific real estate investment transactions were down 19% YoY to $269.8b (US$34.4 b) in what RCA noted as a “lackluster” second quarter, dragged down by the trade war and general economic slowdown. However, RCA noted that it has already recorded $78.43b (US$10b) in completed transactions for the third quarter with a further $156.86b (US$20b) pending.

“[This] indicates APAC overall could be poised for a bounce-back in the remaining months of 2019,” the report read.

Of all the capital deployed in the region in the second quarter, 69% was allocated to the eight largest markets – the highest proportion since 2011-- suggesting that investors are choosing to avert risk by capital investing to the largest, most transparent, and liquid real estate markets, rather than to regional or smaller cities.

Australia topped the second quarter rankings for commercial real estate investment transactions in APAC, bolstered by renewed domestic investor confidence in the wake of the national election and foreign capital inflows. In contrast, investment volumes for the quarter in China and Japan investment volumes fell to the lowest levels in a decade as both domestic and cross-border investment flows dried up.

“Australia’s leading second-quarter performance clearly stands out among the top five biggest Asia Pacific real estate investment markets, as there was a sharp uptick in the consolidation of property ownership over the period and a handful of large domestic deals,” said Green-Morgan.