Asia Pacific real estate investment hits record USD $92.5bn

Asia Pacific commercial real estate investment volumes rose 38% year on year to USD $45.5 billion in the second quarter, according to JLL. First-half volumes reached a record USD $92.5 billion.

Regional investment for the first six months rose 35% from a year earlier, even as investors contended with higher energy costs, currency volatility and supply chain disruption.

Japan remained the largest market in the quarter, with investment volumes of USD $10.6 billion. Activity increased across all major property sectors. Office transactions led as core investors bought assets, while industrial deals attracted value-add buyers seeking rents below market levels.

Demand for data centres in Japan also stayed strong, supported by domestic data sovereignty policies and investment linked to generative artificial intelligence. The figures suggest technology-related property themes continue to attract capital despite broader geopolitical uncertainty.

Australia recorded USD $8.9 billion of second-quarter investment, up 82% from a year earlier and its highest quarterly volume since the second quarter of 2021. Four large portfolio transactions drove much of the activity, with listed real estate investment trusts, unlisted property trusts, developers and private investors active in industrial property.

Retail property in Australia also attracted buyers as trusts returned to the sector and private investors acquired smaller assets, particularly those priced below AUD $50 million.

Singapore posted one of the sharpest increases in the region, with second-quarter volumes rising 108% year on year to USD $6.7 billion. Two large transactions dominated activity: CICT's acquisition of Paragon Mall from Cuscaden Peak for USD $3 billion and IOI Properties' purchase of Asia Square Tower 2 from CICT for USD $1.9 billion.

Hong Kong recorded the fastest growth rate in the region, with volumes up 129% to USD $3.1 billion. The increase was driven by a recovery in retail and office transactions, including several office deals linked to assets under receivership, such as 299 Queen's Road Central and One Bedford Place.

India's market was smaller in absolute terms but also expanded, with second-quarter volumes reaching USD $1.6 billion, up 23% year on year. Office assets remained the dominant segment, with office investment volumes rising 125% as domestic funds, developers and real estate investment trusts led acquisitions.

Defensive shift

Across the region, investors continued to favour sectors and markets seen as more resilient. Uncertainty is expected to remain a defining feature for the rest of the year, pushing capital towards defensive areas and assets with either strong structural demand or clearer income visibility.

Offices remained one of the more notable sectors, particularly in core cities where limited new supply has supported pricing and rents. Demand for offices has been shaped more by asset quality than by commodity or energy costs, helping the sector hold up better during periods of inflation pressure.

Data centres were also seen as relatively insulated from geopolitical tensions. Demand tied to artificial intelligence and cloud spending has remained stronger than expected even as broader capital expenditure has become more cautious, with electricity availability rather than conflict acting as the main constraint on growth.

Artificial intelligence is also reshaping office demand across Asia Pacific, although the effect differs by market. Changes in employment do not translate directly into property performance because supply conditions, asset quality and the broader macroeconomic backdrop continue to influence outcomes.

Investment flows across the region point to a shift towards technology-linked assets and value-add real estate. In markets including Japan and Australia, data centres and logistics portfolios played a central role in deal activity, while some investors also targeted offices and hotels where yields could stabilise quickly, or pricing had adjusted.

South Korea was one of the markets where elevated interest rates continued to widen the gap between buyer and seller expectations. Even so, the broader regional picture in the first half showed that large transactions were returning in selected sectors and cities.

"While investors are navigating a tricky geopolitical backdrop and the reversing of the regional rate-cutting cycle due to stubborn inflation, the sheer scale of transactions this quarter shows that capital remains abundant," said Stuart Crow, Chief Executive Officer, Asia Pacific Capital Markets, JLL.

"Rental growth prospects across nearly all major markets and sectors are very compelling, driven by a lack of supply and rising replacement costs. The return of mega-deals, in both office and retail, demonstrates that large global investors are capitalising on repriced premier core assets," said Crow.

The pattern of dealmaking suggests investors were being selective rather than retreating from the market altogether. Large office and retail transactions in Singapore and the rebound from a low base in Hong Kong helped lift the regional total, while steady demand for logistics and data-related assets underpinned activity elsewhere.

"The persistent uncertainty has forced investors to underwrite deals with greater caution, yet the appetite for APAC real estate remains remarkably intact," said Pamela Ambler, Head of Investor Intelligence, Asia Pacific, JLL.

"Investors are pivoting toward sectors with strong structural demand, such as data centres in Japan and logistics in Australia, or targeting assets that offer immediate yield stabilisation, like Hong Kong's recovering offices," said Ambler.