Asia Pacific commercial real estate investment volume registers 2% growth

SINGAPORE, August 6, 2024 – Commercial real estate investment in Asia Pacific rose 2% year-on-year (YoY) in Q2 2024 to US$27.3 billion, marking the third consecutive quarter of growth for the region. According to data and analysis by global real estate consulting firm JLL (NYSE: JLL), H1 2024 investment volumes totalled US$57.5 billion, a 7% increase from the same period a year ago.

Office remained the most active sector, with Asia Pacific office volumes reaching US$10.7 billion in Q2. Growth led by offices was supported by retail and hotels, which continued to record volume growth from a year ago. Asia Pacific retail volumes rose 12% YoY to US$4.6 billion and hotel volumes grew 19% YoY to US$5.7 billion for H1 2024.

Japan was the most active market in the region, recording US$5.8 billion in Q2 trades, driven by a surge in hotel deals fuelled by a weak yen and booming tourist arrivals.

“The cost of borrowing is mostly still elevated in Asia Pacific markets except Japan. This has resulted in real estate assets in the region facing repricing pressure across the office, retail, and logistics sectors. However, the region’s office sector sees growth despite challenges faced by global investors, bouncing back from interest rate hikes that began in mid-2022, where yield spreads for office narrowed to the lowest levels in Q3 2022 to Q4 2023,” said Stuart Crow, CEO, Asia Pacific Capital Markets, JLL. “Coupled with strong prime rental growth in many markets and declining bond yields in the coming quarters except in Japan, return expectations are set to improve, further boosting investor sentiment.”

Cross-border investment volumes in Asia Pacific registered US$7 billion in H1 2024 (Q2: US$3.6 billion), retreating 38% YoY, as most markets were dominated by domestic investors. However, cross-border capital favoured hotel investment strongly, with all cross-border activities in Japan in Q2 being hotel investments. In Q2, China and Hong Kong became predominantly domestic markets with virtually no investment from overseas investors, due to China’s economic downturn and intensifying geopolitical situation causing foreign investors to adopt a wait and see approach.

Singapore (US$1.9 billion) and Australia (US$5.4 billion) both recorded YoY growth in investment volumes, up 31% and 73% respectively. In Singapore, strata sales dominated office transactions, with occupiers and family offices actively seeking investment opportunities. However, institutional investment activity in Singapore remained relatively subdued due to lack of market liquidity. In Australia, capital allocation towards office and industrial assets rebounded strongly following a number of large institutional sales, with industrial volume reaching its highest quarterly level since Q4 2021, and the office sector at its highest level since Q3 2022.

Meanwhile, South Korea recorded a 5% decline in investment volume for H1 2024, with US$3.5 billion recorded in Q2. Office and logistics volumes in South Korea were muted as investors remained cautious in their bids despite growing number of properties being listed on the market.

Data centres have also emerged as a bright spot, particularly in Southeast Asia (SEA), where investment into SEA data centres made up 52% of Asia Pacific investment volume. In particular, Malaysia and Vietnam have emerged as prized data centre investment locations due to their relatively lower cost of land, labour and electricity compared to Singapore, translating to operational efficiency and competitiveness for data centre providers.

“With expectations for the US Federal Reserve to lower interest rates come September, we look forward to an easing of borrowing costs to follow in the region,” said Pamela Ambler, Head of Investor Intelligence, Asia Pacific, JLL. “Coupled with the buzz in Southeast Asia’s data centre sector, we look forward to seeing how these factors will steer commercial real estate investment in the region.”

Learn more in JLL’s Q2 2024 Capital Tracker.