APAC Real Estate Investment Rose 6% in Q3 as Global Investors Reappear: MSCI

Trades of income-generating real estate in Asia Pacific rose 6 percent to $34.6 billion in the third quarter compared with year-earlier volume, as global investors waded back into the region’s commercial properties after retreating in 2023, according to MSCI.

Global investors deployed $12.2 billion into APAC commercial real estate during the first nine months of the year, up 12 percent, the data provider said in its latest Asia Pacific Capital Trends report.

Those same investors’ share of APAC deal activity had dipped to just 9 percent in 2023, the second-lowest level for a calendar year on record, with US-based players slashing their allocation by 49 percent compared with the 2020-22 average as investment from Canada and Europe plunged 75 percent and 79 percent respectively.

China led APAC markets in this year’s third quarter with $9 billion in investment volume, up 15 percent year-on-year, driven by distressed asset sales and retail deals in Asia’s biggest economy. South Korea saw a 24 percent jump in the period to $6.3 billion as the country’s resilient office segment continued to dominate, while Japan volume tumbled 46 percent to $5.8 billion after the country’s central bank tightened in July, running counter to a surprise US rate cut in September.

“The US Federal Reserve’s decision to begin lowering rates in the third quarter proved to be an important inflexion point for commercial real estate investors,” said Benjamin Chow, head of real estate research for Asia at MSCI. “This triggered a wave of capital surging back into repriced core sectors, along with a pick-up in institutional appetite for the markets with higher interest rates.”

Offices Rebound, Hotels Sag

The three traditional mainstays of office, industrial and retail recorded increases in deal volume during the third quarter as the lodging and living segments slumped, according to the report.

Office activity rose 19 percent to $12 billion in the quarter compared with a “particularly quiet” year-earlier period. Since the end of 2022, office yields have expanded 40 basis points in Seoul and 110 basis points in Sydney, both home to many new office deals in mid-2024.

“The bounce back was a long time coming for the office sector, where volumes have slid steadily for most of the past two years,” MSCI said, adding that the pipeline of office deals in progress also grew significantly in the third quarter.

Transactions of hotels plunged 26 percent year-on-year in the third quarter to $3.1 billion as activity fell in the two biggest markets, China and Japan.

The biggest hotel deal closing in the period was Singapore sovereign fund GIC’s sale of the Hilton Fukuoka Sea Hawk to Mizuho Leasing for $452 million, marking APAC’s 13th largest single-asset transaction in the year to date. In South Korea, ARA Asset Management and SMFL completed their $300 million acquisition of the Conrad Seoul from Canada’s Brookfield.

Alternative Avenues

Investor appetite for alternative assets remains strong in APAC, with year-to-date acquisitions of standing data centres, including pending deals, having already nearly doubled 2023’s full-year total, MSCI said. These included South Korea’s biggest-ever stabilised data centre deal, Macquarie Asset Management’s $538 million buy of the IGIS Hanam Data Center in Gyeonggi province.

Blackstone and CPPIB’s $16 billion acquisition of APAC data centre platform AirTrunk was signed in the third quarter but is yet to close, while HMC Capital’s $1.4 billion purchase of Global Switch Australia’s Sydney campus was completed this month.

Life sciences and R&D also gathered steam, especially in Singapore, where a joint venture of Lendlease and Warburg Pincus picked up a $1.2 billion portfolio of business parks and R&D facilities from entities linked to Blackstone and Soilbuild Group chairman Lim Chap Huat.