Australia’s retail investment market under pressure, while Beijing surges: Real Capital Analytics

Beijing surged to top position among Asia Pacific metropolitan commercial real estate investment markets for the first time in the first quarter of 2019. 

The city’s stand-out performance contrasted with most other markets as total investment volume across Asia Pacific slumped by 36% year-on-year (YOY) compared with the same period of 2018.

China’s economic slowdown, its trade tensions with the U.S. and the global downturn in demand for consumer products took their toll on property investment across the region, Real Capital Analytics’ Asia Pacific Capital Trends Q1 2019 report showed.

Investments totaling US$4.5 billion lifted Beijing into pole position in the first quarter, from seventh place in 2018.

Two mega-deals of over US$1.3 billion accounted for more than half of that figure.

Hong Kong was nudged into second place among Asia Pacific metropolitan markets with an investment volume of US$4.4 billion and Tokyo came in third at US$3.9 billion.

"Traditionally, Beijing was considered a government city, more than a major commercial real estate investment target," Petra Blazkova, RCA’s Senior Director of Analytics for Asia Pacific, said.

"Cross-border capital flows, however, appear to be changing the nature of the market and the city is becoming more appealing to institutional investors."

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Source: RCA 

Beijing was one of only a few markets not included in the general regional retreat.

Overall investment volume slid by 36% in the first quarterly of 2019 to reach US$30.5 billion with Asia Pacific markets struggling to match the elevated pace recorded in 2018.

Blazkova added the markets are comparatively late in the real estate investment cycle and prices look high from a historical perspective.

"Global interest rates, however, remain relatively low and the count of pending deals is substantial in markets such as Hong Kong, China and India," he said. 

"On balance, these factors signal that the outlook for Asia Pacific’s investment markets for the remainder of the year may be more upbeat."

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Australia’s Retail Investment Market Under Pressure

Real estate investment transactions ebbed in Australia ahead of federal elections on May 18, with deal volume down 27% to US$3.0 billion compared with the same period of 2018. The biggest contributor to the decline was the pull-back in cross-border capital flows.

More broadly, Australia is facing larger challenges with housing prices falling for over a year, led by Sydney and Melbourne.

The retail market too is under pressure, hit by the rise of e-commerce. Discount department stores have been particularly hard- hit amid a wave of shop closures and consolidations.

Blazkova said while the office yield compression in Sydney and Melbourne stopped at or near record lows, more pressure on yields was obvious elsewhere.

"The structural changes ahead of the Australian retail sector have started to impact its pricing," he said.

"Shopping centre yields have moved out by 70 basis points in the last 12 months."