Asia-Pacific capital rates drop on limited investments

HONG KONG: Capital rates in the Asia-Pacific have witnessed substantial declines in recent years due to ample capital chasing limited number of investment grade assets and accommodative global credit conditions, according to the Savills World Office Yield Spectrum First Half 2015 report.

“However, capital rate spreads remain healthy in some markets such as Tokyo, Osaka, Sydney, and Melbourne where they continue to attract significant investor demand. Most notable has been a decline in the appeal of China where yields remain heavily compressed, overbuild is evident in many markets and economic growth failing to match expectations,” said senior director of Asia Pacific research at Savills Simon Smith.

“Elsewhere, while improving occupier markets may hint at rising yields in select markets, returns from prime assets look unlikely to increase substantially in the immediate future, forcing investors further up the risk curve. In the absence of suitably priced stock, investment volumes are expected to remain constrained well into 2015.”

Last year, Asia-Pacific’s capital markets have seen some US$37.4 billion (RM135 billion) real estate capital flows exiting the region for Europe and the United States compared with US$22.4 billion that entered in 2014.

“The Asian real estate investment landscape has undergone many changes, not least the recent increase in the number of domestic funds of all kinds, often core focused, looking for opportunities both at home and abroad,” said Smith.

“Ownership restrictions or markets where assets are tightly held by local developers and investors, and a surfeit of investors driven by considerations other than yield, have ensured that good quality investable properties remain scarce. Successive waves of quantitative easing from the US, China, and more recently Japan, have also contributed to the excess liquidity.”

Smith added that pension funds, sovereign wealth funds, insurance companies, and high-net worth individuals are contributing to the weight of money chasing real estate assets.


This article first appeared in The Edge Financial Daily, on February 27, 2015.

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