So far, 2023 has been rather grim for real estate investment, with transaction volumes falling worldwide due to rising interest rates and fears over the economic outlook. However the Asia Pacific real estate market boasts an important positive point.

Despite regional transaction volumes falling 42% year on year to $62 billion in the first half of this year, cross-border investment by Asia Pacific players rose marginally compared with the first half of 2022, to $11.8 billion, MSCI Real Assets reports.

This contrasts with a 67% drop in cross-border transactions involving capital from outside the region, as North American and European investors have reduced their activity. In the first six months of 2023, investors from Hong Kong, Japan and Singapore spent more on property elsewhere in the region than their average for the past three years.

Christian Mancini, chief executive, Asia Pacific ex-China at Savills, says: “The most significant slump in activity has been in the office sector, which was previously a favourite for big investors from outside the region. However, intra-regional investment, especially from Hong Kong and Japan, is holding up.

“We are still seeing interest in sectors with potential for rental growth and for transactions where there is a positive gap between financing costs and real estate cap rates.”

The most significant uptick in cross-border buying has come from Japanese investors, who spent more elsewhere in Asia Pacific in the first half of this year – $2.5 billion – than their previous record for a calendar year (2018: $1.4 billion). Japanese real estate investors have been buying in Australia and Southeast Asia.

This Japanese spending spree has been replicated outside Asia, where Japanese investors spent more than $4 billion on standing investments in the first half of 2023, including the $1 billion acquisition of a 49.9% stake in 245 Park Avenue by Mori Trust.

Mancini says: “Japanese companies are looking to grow and diversify their businesses by investing overseas. This can be seen in other sectors as well as real estate. For example, Japanese financial services companies have recently been investing in US banks.”

Japan is also a popular target for regional and international capital. Mancini says: “Although an outlier in the region, the Bank of Japan’s policy to maintain low interest rates has resulted in a very strong investment market both for domestic and cross-border investors.”

Investors from Hong Kong spent nearly $5 billion on real estate in the Asia Pacific region in the first half of this year, up 30% on the three-year average, with a few investors targeting the Mainland China market, particularly in the business park sector.

Asian investors are on the lookout for distressed real estate opportunities, Mancini says. “We have not seen a huge number of distressed vendors or assets; however this may change as the market adjusts to a new economic environment.

“There is still plenty of Asian capital, from listed companies, private equity groups and family offices, looking for a home in the region’s real estate markets.”

Further reading:
Asia Pacific Investment Quarterly