Melbourne bucks downward trend in Asia Pacific commercial property prices in late 2018: Real Capital Analytics
Asia Pacific commercial real estate investment markets appeared to run out of momentum in the third quarter of 2018 after two years of very strong growth, with deal volumes sliding in the region’s two largest markets, Real Capital Analytics (RCA) data showed.
China registered the lowest quarterly level of transactions in five years as it reined in lending to investors and developers. Japan experienced its quietest three months since the Global Financial Crisis a decade ago.
Q3 2018 volumes were down 27% to US$27 billion compared to the same quarter last year, but were saved from a steeper decline by all-time high volumes in South Korea.
The last time the region recorded a quarterly decline was Q2 2016. Over the 12-months ending Q3 2018, purchases of commercial buildings in APAC totalled US$165.0 billion, a 3% increase from the same period ending Q3 2017, RCA‘s Q3 2018Asia Pacific Capital Trends report showed.
Petra Blazkova, RCA’s Senior Director of Analytics for Asia Pacific, said: “For the past decade the Asia Pacific real estate investment market has been characterised by rising prices and steady yield compression, enabling capital gains for most players."
"With property yields at historic lows and tighter financing conditions looming, or already encroaching in some markets, activity seems to be shifting into a lower gear as investors determine whether the next stage of the investment cycle is on the horizon.”
Australian Price Growth Momentum Begins to Ebb
After a long run of gains, commercial real estate prices in Australia have logged two successive quarters of decelerating growth. Australian investment volumes over the quarter fell 39% compared to Q3 2017 and over 12-months dipped 1% year-over-year in Q3 2018 to US$26.7 billion (A$37.0 billion), RCA data showed. Deal count declined by 15%, based on 12-month rolling totals.
Offices, while remaining the best performer, started to plateau first, and particularly outside Sydney’scentral business district. The narrowing financing gap has also forced investors to take a pause. RCA’sCommercial Property Price Indices (CPPI) showed Australian commercial real estate prices have risen 82% in the past five years.
Sydney recorded growth in both the retail and industrial sectors for the first nine months of the year, however overall volumes declined by 5%, possibly signaling a market turning point. Average quarterly commercial real estate yields in the city, which move inversely to prices, rose for the first time in three years.
Yields elsewhere have continued to compress over the past quarter, most notably in Melbourne by 25 basis points and where price rises in Q3 averaged the highest for any major city in the world, RCA data showed.
RCA’s Blazkova observed: “The jury is out on the Australian market following this bout of weakness. High prices are persuading owners to sell, which supports the investment market, but overall momentum appears to be slowing.”