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MSCI Real Assets: Asia Pacific Commercial Property Trading Slides to Lowest Level Since 2012 as Debt Crunch and Pricing Uncertainty Put Buyers and Sellers on Hold

May 11, 2023 – Trading of commercial property slumped in the first quarter of 2023 to the lowest total in over a decade, extending the downturn seen in the second half of 2022, due to rising interest rates and an unsettled picture on pricing.

The latest Asia Pacific Capital Trends report from MSCI Real Assets, a part of MSCI, showed that the volume of income-producing properties that changed hands totaled US$27.2 billion in Q1’23, just half the level of the same period a year ago. Of the major markets, only Singapore and Hong Kong were the main bright spots, each boosted by megadeals.

Benjamin Chow, Head of Asia Real Assets Research at MSCI, said: “The continuing slowdown is perhaps unsurprising given that price adjustments in Asia Pacific have been modest compared with those witnessed in other parts of the world. At the same time, outside of Japan, dealmaking remains challenged given where prices sit relative to borrowing costs, and the pipeline of deals has continued to shrink even in the first quarter of the year.”

Exhibit 1: Quarterly investment volume by deal type

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There was little to cheer about across any of the major income-producing property sectors. Retail posted the shallowest decline across the core sectors, buttressed by the Singaporean megadeal, but still fell more than 25% compared to a year ago. Retail assets came into this downturn at relatively more attractive pricing levels, while sellers have been more willing to adjust prices compared with other sectors. 

Elevated pricing held back activity in the industrial sector. In many markets, yields had compressed by more than 100 basis points since the start of the pandemic and the reversal from those lows has been modest. Deal volume sank by 63% year on year to US$4.6 billion, easily eclipsed by the retail sector which garnered US$7.3 billion in deal activity.

Offices remained the largest asset class for investment, despite a halving of activity to US$10.6 billion. The largest deal in the quarter was the sale of the Goldin Financial Global Centre for US$830 million. The transaction was not necessarily a positive sign: the price achieved was substantially lower than the price offered by a buyer over two years ago, before the asset fell into receivership.  

Exhibit 2: Investment volume by sector (US$)


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David Green-Morgan, Global Head of Real Assets Research at MSCI, said: “The office sector is perhaps the most closely watched of the major asset classes at the moment, as capital values in Asia Pacific continue to hold up for the moment even as those in the U.S. and Europe have slid considerably. There remains more appetite for this asset class in the APAC region but even that may not be enough to prevent some degree of price corrections later this year.”

Exhibit 3: Investment volume by market (US$)


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South Korea Endures a Miserly First Quarter

South Korea was the weakest of the major APAC markets at the start of 2023. The decline in both deal volume and deal counts was the sharpest across all the major markets globally and sales volume totaled just US$2.7 billion. Hotel trades in Seoul dried up – no deals over US$10 million were seen.

Benjamin Chow said: “A quiet first quarter was largely the product of a liquidity crunch and interest rate volatility witnessed towards the end of last year. With the central bank’s more recent stabilization of the cash rate since February, the market began to pick up towards the end of the quarter. In fact, the worst could already be behind us – office volumes in April alone had already far exceeded office investment for the whole of the first quarter.”

Retail Sector Brings a Shine to Singapore

Singapore posted its strongest ever start to a year in 2023. Sales volume increased 40% year on year to reach US$3.7 billion, which made Singapore the most active metro regionally, up from fifth position for 2022. The sale of the Mercatus retail portfolio across two separate deals alone accounted for 60% of deal volumes within the quarter, while the industrial sector also posted strong growth year-on-year.

Benjamin Chow said: “While the Mercatus shopping malls will steal most of the headlines, Singapore’s commercial real estate market has displayed resilience in many other ways. The number of deals fell by less than 10% from last year – only China fared better across all the major markets globally – illustrating the depth of private and corporate appetite for real estate in the city-state.”

Australia’s Rising Debt Costs Thwart Dealmaking

Dealmaking in Australia slowed significantly, hampered by the increase in debt costs and an unsettled outlook for pricing. Acquisitions priced US$10 million and greater totaled US$2.9 billion for the quarter, a decline of 72% from a year prior. The contraction in deal volume in Sydney was tempered by the sale of the Waldorf Astoria for more than US$350 million. Melbourne had no such bright spot, and activity plunged by 85%, sending it to #14 on the ranking of APAC’s most active markets, down from #6 for 2022. 

Mixed Signals for China

By some measures, deal activity in China was stronger than its peers at the start of 2023. The contraction in deal volume of 33% was shallower than the regional average and the number of deals grew on a quarterly basis for a second consecutive quarter. To boot, it was the largest market in the region with US$7.7 billion in sales. However, the pace of distressed asset sales has picked up pace and Shanghai deal activity dropped close to 70% relative to a year earlier.

David Green-Morgan said: “China’s decline in investment activity was all about one city – Shanghai. Excluding the nation’s biggest market, deal volumes would have grown by double digits relative to last year. These gains would have been well-distributed across a number of Tier 1 and 2 cities as well, with Beijing, Shenzhen, Wuhan, Hangzhou, Nanjing, Tianjin and Chengdu all posting year-on-year growth from the first quarter of last year.”

Japan Starts 2023 With Positive Notes

Deal activity in Japan fell by more than 40% relative to a year ago but there were positive notes in the quarter. It was the only major market where the pipeline of deals in contract grew rather than shrank. Over 60% of global cross-border deal activity was allocated to Japan, the majority of which went into the beds sectors. Deals signed towards the end of the quarter included KKR’s purchase of Hyatt Regency Tokyo and the purchase of CBRE IM’s logistics portfolio by MapletreeLogistics. BentallGreenOak’s acquisition of the Rihga Royal Hotel in Osaka was the sixth largest single asset deal across APAC in the quarter.

David Green-Morgan said: “The Japanese hotel sector has faced unprecedented circumstances in the last three years; from the highs of an upcoming Olympic Games boosting volumes to historic highs in 2020 – only for those games to take place with no overseas visitors – to a glacial pace of post-Covid opening. Finally, circumstances are normalizing, and investors have returned with the expectation of strong tourist numbers in 2023.”

Hong Kong Deal Activity Grows

Hong Kong was just one of two major markets globally where deal volumes grew in the first quarter. Sales volumes increased by 15% to reach US$2.6 billion, boosted by the acquisition of the Goldin Financial Global Centre by Mapletree and PAG. The US$830 million acquisition of the distressed property was the largest single asset deal across the region in Q1 2023.

David Green-Morgan said: “There was some positivity for the Hong Kong market but it may still be too early to celebrate at this point. Transaction activity was coming off a particularly low base in 2022, while the negative spread between commercial yields and borrowing costs will be exacerbated by the most recent interest rate hike. Still, China’s reopening has had a positive impact on the hospitality sectors, with both retail and hotel assets posting strong growth in investment compared with the previous quarter.