The markets continue to rally across Asia Pacific as rents and values continue to rise. At USD 84 billion 2010 direct transaction volumes finished up circa 25% on 2009 and were at a similar level to that of 2008. Australia, HK, Singapore and China were all popular destinations for cross border investment in 2010 and we see more of the same continuing in the early parts of 2011. Lack of stock in Hong Kong and Australia will likely reduce volumes there in the foreseeable future, while China remains a focus for many investors, particularly in the retail sector. Singapore prices have risen so quickly that many investors feel they have missed the market, and similar to the last run up in 2006, yields have been driven down to below 3% on the expectation of future rent increases. Opportunities remain in this market in my view, but investors will be rewarded with speed, both on the entry and on the exit!
Industry consolidation in the Real Estate Private Equity Space will bring more stock to the market in 2011, as the previous CPI and Merrill Lynch portfolios for example are rationalized over time. We expect to see an increased number of larger portfolio and platform deals in the market during 2011, as funds come to the end of their life, or managers seek to consolidate and focus their portfolios. Much of this product is in Japan, where slow (or no) growth continues to discourage investors. We however like Japan. Spreads above government bonds of over 500 bps won’t last forever and its probably the last true counter cyclical play left in Asia post GFC.
Our Corporate Finance team reports significantly increased activity in the fund raising space, although the true test as to the depth of LP interest will be the larger Pan Asia fund managers who will likely be out fund raising in late 2011. All in all the markets appear in a “healthier” state. Most people have taken their “medicine” and the outlook appears stable, although many markets will require regular check ups during the year as government policy may play a significant part in accelerating that inevitable part of the cycle where we all don’t feel so good anymore!