Asia Market Snapshot Q2 2016

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Transcript of Asia Market Snapshot Q2 2016

  • CAPITAL MARKETS & INVESTMENT SERVICES I ASIA

    Asia Market Snapshot Q2 2016

  • 2 | ASIA MARKET SNAPSHOT Q2 2016

    The second quarter of 2016 ended with unprecedented financial markets upheaval following the decision by the United Kingdom to withdraw from the European Union. The uncertain future of the UK, along with Europe, is expected to weigh down the already fragile global economic environment in the coming months (if not years).

    Market watchers anticipate that capital flight to safety flows will expedite over time to seek out safer havens in non-UK and possibly non-European investments. As a result, Asian markets and its real estate sector are widely tipped to be one of the main beneficiaries of Brexit.

    Shanghai and Singapore had seen strong volumes in commercial real estate investment activity in the past quarter.

    There were 17 successful en bloc transactions in Shanghai alone during Q2. In addition, several other deals are expected to be done in the next few months as investors rush to buy assets amid rising capital values.

    In Singapore, the standout deal has to be BlackRocks landmark sale of Asia Square Tower 1 to Qatar Investment Authority for SGD3.4 billion (USD2.52 billion). This brought total deal volume to SGD8.56 billion (USD 6.34 billion), coupled with the acquisitions of Straits Trading Building as well as a 50% stake of 78 Shenton Way for SGD560 million (USD 414.4 million) and SGD301.5 million (USD223.11 million) respectively.

    In Hong Kong, investors remain bullish on CBD office properties, on the back of healthy rental growth and large take-up from Chinese financial institutions, banks and asset management companies.

    Our Asia Market Snapshot aims to provide information on the latest trends, along with advice from my colleagues in Asian markets, to help you make more informed investment decisions.

    We note several other notable key trends across Asia :

    Increasing number of core real estate investment mandates, given declining government bond yields and investor risk aversion.

    Institutional investors continue to pursue well-located and quality commercial assets in key Asian cities including Shanghai, Hong Kong and Singapore.

    Indias recent announcement of pro-investment measures is likely to boost the countrys foreign direct investments and the real estate investment trusts (REITs) sector.

    A regional view

    Terence TangManaging DirectorCapital Markets & Investment Services I Asia

  • ASIA MARKET SNAPSHOT Q2 2016 | 3

    Betty WongShanghai remains a bright spot of Chinas investment market in Q2, with the conclusion of 17 en bloc transactions in the quarter. With the diversification of financing instruments being introduced and restriction on the domestic capital outflow, there were heightened domestic investment activities stimulated by local capital.

    Both domestic investors and developers were actively seeking strata-titled serviced apartments with promising return on investment profiles, which in turn generated strong demand in this sector. As for vacant downtown business district (DBD) offices and business parks, they continued to attract owner-occupiers.

    Wang YangWith the governments emphasis on shifting non-capital functions out of the downtown area and its follow through with the Beijing-Tianjin-Hebei (Jingjinji) integrated development plan, developers continue to contribute to significant land biddings in the Jingjinji suburban areas. The tight control on Jingjinjis land supply has also led to the steady rise of the unit prices of construction land.

    Though both local and overseas institutional investors are highly interested in Beijings office spaces, investment opportunities were limited in core areas as vendors of properties with stable rental income continued their hold-and-lease strategy.

    In mid-May, Shimao Real Estate set a new record for retail en bloc sales in Beijing with its disposal of the Shimao Department Store to LeTV, a new tech giant, for approximately 2.97 billion yuan (USD445.5 billion), translating to a unit price of over 70,000 yuan (USD10,000) per square metre for the above ground retail GFA. We noted that tech giants with the likes of Alibaba and Baidu are also becoming active investors in the market.

    There is currently a new trend of institutional investors showing preference for older office, retail and hospitality properties situated in traditional business areas, with plans of potentially renovating these assets before capitalising on them. However, investors return on investment cannot be met given the vendors expectations of selling these properties at high prices.

    BeijingShanghai

    From sectoral perspectives, office and business park continued to be the most active segments; whilst the serviced apartment sector recorded completed transactions for the fourth consecutive month even though the government had, since Q1, placed the limited purchasing order on residential properties into effect. On the retail market front, one transaction in the core CBD area was made by a domestic retail company.

    The outlook for H2 2016 investment market remains optimistic. Several deals in the negotiation stage are expected to be concluded in the short-to-medium term. Given the strong demand from market investors to procure assets, capital value is forecasted to increase moderately while the investment yield is accordingly expected to decrease at a modest rate.

    Office property investment remains of priorityin Beijings real estate investment market.

  • 4 | ASIA MARKET SNAPSHOT Q2 2016

    USD992.95million

    ChengduJacky TsaiFor Q2 2016, residential sales continued to increase in main urban areas. Given the lack of release of designated land for residential development, developers have started to pay close attention to other high development potential locations around this main area. This resulted in the bids of three greenfield lands in Tianfu New City coming in at 100%, 94.29%, and 104% premium respectively.

    On the commercial real estate front, although there were no en bloc transactions were announced during the quarter, there are some ongoing discussions. Owing to the persistent oversupply of office space, foreign institutional investors are monitoring the market cautiously. However, local investors are adopting more aggressive strategies and focusing on high-quality offices in the downtown area and Tianfu New City.

    Despite the comparatively stagnant investment market in the first half of the year, institutional investors continue to pay close attention to Chengdus commercial real estate market. It is possible to see one to two en bloc transactions emerging in the latter half of the year.

    Douglas Lin

    In the first half of 2016, office investment market was extremely active with transacted value of 6.619 billion yuan (USD992.95 million) tracked and all purchases were made by local companies.

    Shenzhen

    Derek HuangWith the market on a decline and softening of property prices, buyers enjoyed greater bargaining power. However, well located assets that were reasonably priced remained attractive to institutional investors whose portfolios comprised a sizeable real estate allocation among other investment vehicles.

    The largest transaction during this quarter was the Hi Lai New World Centre in Kaohsiung City, of which Taiwan Life Insurance spent TWD16.5 billion (USD511.5 million) for this mixed-use complex comprising Grand Hi Lai Hotel and Hanshin Department Store. As a result, the overall quarter-on-quarter market transaction doubled to TWD25.2 billion (USD781.2 million).

    Given the uncertain market outlook leading to greater caution among institutional investors, self-occupiers now face lesser competition and have the opportunity to shop around. WPG Holdings purchased a pre-sale office building in Nangang, Taipei for their own headquarters for TWD6.6 billion (USD204.6 million). In addition, there were several transactions for occupational purposes in decentralised areas such as Neihu Technology Park, Nangang Software Park, and Zhonghe Industrial Park.

    Taipei

    The office vacancy rate is likely to increase in the second half of 2016, with 10 new projects of a combined gross floor area of approximately 871,000 sq m slated for completion within the period. This new supply will depress the average rental rate due to increased competition and below-average rents at certain projects.

    With demand derived primarily from local companies and in particular, the finance and IT sectors, the average vacancy rate declined 1.2 percentage points half year-on-half year to 10.1%. Net absorption was focused on new projects completed in 2015, totalling approximately 135,400 sq m, of which included about 15,000 sq m that relate to withdrawals from financial companies in the peer-to-peer (P2P) sector, as a result of stronger national regulations in this sector.

    The first half of the year also saw several multinational manufacturers relocating their headquarters from the central business district to other districts with lower rental levels. This led to an increase in vacancies, especially in strata-title office buildings within the Futian District. The resultant average rent in the citys Grade A office property market was lowered to 214 yuan (USD32.1) psm per month. On the residential front, the introduction of new housing restrictions by the Shenzhen government in March dampened the sales volume. Despite the decline in sales volume, the trend of rising housing prices persisted.

  • ASIA MARKET SNAPSHOT Q2 2016 | 5

    Tang Wei LengThe investment sales market picked up significantly in Q2 with about SGD8.56 billion (USD 6.34 billion) worth of transactions recorded, an increase of 224.4% over the previous quarter o