Commercial transaction volumes from Asia-Pacific (APAC) to North America rose over 400% year-on-year to US$13.9 billion in the first quarter of 2023, according to an analysis by Knight Frank’s Asia-Pacific research team. Outbound investments from APAC into North America made up 85% of the total investment volumes outside of APAC, marking the highest 1Q volumes recorded.
Christine Li, head of research, Asia-Pacific at Knight Frank said: “APAC investors’ interest in outbound opportunities is fuelled by the more efficient price discovery in mature and liquid markets like the US. In times of crisis, US assets are often seen as a safe haven given the currency stability.
“We have also seen an increased interest in retail and industrial assets due to repricing opportunities in a rising rate environment while there is limited competition. As the Federal Reserve’s rate hike cycle approaches its conclusion, we anticipate further activity in the latter half of 2023.”
Singapore capital accounted for 89% of the Q1 investment volumes, driven by M&A deals by GIC. In another record, outbound capital from Singapore into Canada reached US$3.9 billion – a record for Singapore Capital into Canada.
Japan is the next largest investor into North America, albeit, lagging Singapore significantly. Japanese investments into the US reached US$1.1 billion in 1Q23, which is the highest amount since 1Q17.
Asian sovereign wealth fund in particular dominated APAC’s outbound investment in 1Q23, accounting for 79% of the total volume, with the retail (45%) and industrial (40%) sectors being the most invested sectors in 1Q23.
APAC investment volumes
In drastic contrast to APAC’s outbound investments, Q1 APAC investment activity in 2023 plummeted by 53.6% year-on-year (y-o-y), with quarterly volumes hitting the lowest since the fourth quarter of 2011.
This drop was driven by broad-based declines across domestic/cross-border investments and sectors. Transactions for retail properties rose on the deal for Mercatus’ portfolio, but overall investment volumes fell significantly.
Singapore remained the only market to record higher volumes, with a transaction volume of US$4.3 billion. However, almost half of this came from the deal for Mercatus’ retail portfolio, which took longer than expected to complete due to rising interest rates and choppy equity markets.
Investments in Seoul also hit their lowest level since the first quarter of 2015, with a transaction volume of US$2.8 billion, representing an almost 80% drop compared to 1Q22.
While foreign investments in Japan continued to rise, the momentum is losing steam. The transaction volume in 1Q23 was US$9.4 billion, over 30% below the 1Q average of 2017 to 2021, amid growing concerns that the economy could weaken more than expected if banks tightened financing, which would erode demand for real estate.
Neil Brookes, global head of capital markets at Knight Frank said: “The banking sector’s volatility continues to impede capital deployment in APAC, but gradual adjustments in seller expectations and increased liquidity and activity in the latter half of the year offer hope. Asset repricing and confidence in stabilising debt costs will result in increased investor demand.
“Looking ahead, ultra-high-net-worth investors, with their unique investment goals and resilience to financial headwinds, are expected to play a pivotal role in capital deployment, in contrast to institutional buyers who are still impacted by a higher cost of capital.”
