APAC office supply fell 45% in third quarter, says MSCI

Hulic’s resale of the Minato Mirai Center Building to M&G was the largest pending transaction of the quarter

Fears of an economic slowdown and rising interest rates stifled sales of income-generating real estate assets in Asia-Pacific during the third quarter of 2022, with office property exchanges plunging 45 % year-over-year to $14.9 billion, according to MSCI Real Assets.

The retail sector slowed even faster, with transactions for malls and high street stores falling 54% to $4.2 billion from the same period last year, said the data provider in its Capital Trends report published last week.

Even the smaller 24% decline in industrial property trading, to $8.7 billion, was buoyed by a single transaction: JD.com’s acquisition of China Logistics Properties and its portfolio of 42 properties, valued nearly $3 billion. Without the mega-deal, logistics investment would have had its quietest quarter in five years, MSCI said.

“Rapid changes in the macroeconomic environment are now weighing heavily on the commercial real estate market and the slowdown deepened in the third quarter,” said Benjamin Chow, head of Asia real estate asset research at MSCI. “Not only is new deal activity declining, but deals are also failing, which is a negative signal for the quarters to come.”

Completed transactions

Overall investment volume in the region totaled $32.6 billion in the third quarter, marking a 38% drop from the year-ago period and widening from a 16% year-on-year fall annually in the second quarter.

Benjamin Chow, Head of Real Estate Research, Asia, MSCI

Benjamin Chow, Head of Asia Property Research for MSCI

Trade in commercial properties, which MSCI defines as including office, industrial and retail assets, fell 42% year-on-year in the quarter to $27.8 billion, bringing the sum to 111, $4 billion since 2022, down 20%.

MSCI’s biggest office deal in the third quarter was the $879 million sale of the Goldin Financial Global Center in Hong Kong, although media reports say the deal later fell through amid legal wrangling.

Not counting the failed deal with Goldin Financial Global Center, the amount of deals completed in the quarter, including the collapse of Mirae’s $3 billion purchase of IFC Seoul from Brookfield, has totaled $6 billion, or nearly 20% of global trading volume, MSCI said.

The second-biggest office deal in the third quarter was Hulic’s resale of the Minato Mirai Center Building in Yokohama to M&G Real Estate in a deal valued at $849 million by MSCI. Japanese builder Hulic had purchased the 21-story office building from Goldman Sachs’ asset management division for $835 million in the previous quarter.

Other significant office deals in the July-September period include Lendlease’s acquisition of a 49% stake in a joint venture with Singtel for $582 million to redevelop Comcentre’s headquarters in the Singapore’s Orchard area, as well as sovereign investor GIC’s purchase of a half stake in a $568 million Melbourne office development at 555 Collins Street from Charter Hall.

The hotels are holding up

The hotel sector fared better than the others in the third quarter, with volume down just 8% year-on-year to $2.4 billion. It was the only segment in which the pipeline remained constant from the same point in 2021, with more than $1 billion worth of properties trading in Japan in the third quarter alone, although many properties purchased may not stay in the hotel business.

“The decline in the hotel sector has been mild, but part of dealing in this sector is repositioning hotels as different types of properties,” said David Green-Morgan, global head of real assets research at MSCI. .

An example of such conversions is the $115 million purchase by Angelo Gordon and Weave Living of the Grand City Hotel in Hong Kong Island’s Western District to turn it into a co-housing project, one of many acquisitions hotels by Weave over the past few months.

For the apartment sector, which saw investment fall 13% year-on-year to $1.6 billion, Japan continued to be a hub of activity in the third quarter. The biggest buyer was French fund manager AXA IM Real Assets, which acquired two multi-family and student housing portfolios in Greater Tokyo and Osaka for a total value of $418 million.

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