Commercial real estate investment activity in Asia Pacific (Apac) contracted 22% y-o-y in 3Q2023 to US$21.3 billion ($29 billion), marking the lowest quarterly figure since 2Q2010, according to JLL. In a Nov 14 press release, the consulting firm observes that the plunge in transaction volume was underpinned by a continued drop in office and retail deals.

“Despite a strengthening return to office narrative and low vacancy rates in many markets, investors remain generally more cautious on the office sector,” notes Stuart Crow, CEO for Apac capital markets at JLL. “The high cost of debt has also exerted repricing pressures and most markets remain in price-discovery mode as investors adjust their targeted returns for acquisitions.”

China was the most active Apac market in 3Q2023, recording US$4.7 billion in investments, up 43% y-o-y. Industrial and logistics assets, together with assets equipped for R&D, were the primary recipients of capital.

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In Hong Kong, investment activity reached US$0.8 billion, up 15% y-o-y, with most transactions consisting of small lump-sum deployments involving strata-title assets for owner-occupation.

Japan also saw growth in 3Q2023, with transaction volume edging up 3% y-o-y to US$4.1 billion, backed by an active industrial and logistics sector, as well as hotel acquisitions by J-REITS amid a rapid recovery in Japan’s tourism industry.

In contrast, other Apac countries saw significant y-o-y declines in investment volumes. In Australia, investments plunged 47% y-o-y to US$3.8 billion in 3Q2023. This comes amid a slow market as rapid funding cost changes continue to prompt price discovery by investors.

In South Korea, transactions clocked in at US$4.2 billion last quarter, falling 35% y-o-y, as domestic investors exhausted a large portion of their blind funds, while subdued sentiment among global core investors caused a drop in office deals.

In Singapore, investment volumes fell 11% y-o-y to US$2 billion in 3Q2023. Nonetheless, JLL highlights that the quarter saw notable acquisitions in the hotel, hospitality and retail sectors.

Despite the damper capital market performance in 3Q2023, JLL remains confident in the longer-term attractiveness and resilience of Apac real estate, notes JLL’s Crow. In the short term, he observes that investors are currently seeking more clarity on pricing and the macroeconomy.

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Pamela Ambler, head of investor intelligence for Apac at JLL, highlights that interest-rate hike cycles are nearing their end in the region, which will impact the market. “The Reserve Bank of New Zealand and Bank of Korea are likely to conclude their monetary tightening whilst the Reserve Bank of Australia may have more work to do,” she says. Thus, most regional floating rates are expected to stay similar or experience a modest increase.

Ambler continues: “As we approach the end of 2023, investors will weigh the elevated cost of capital against an uncertain macroeconomic environment. With the Fed’s upcoming decision on adjusting interest rates, we can also expect investment activity to pick up as the cost of debt eases.”