APAC property investment rises 18% but returns split across markets

Singapore surged 170% on a Hongkong Land deal while Australia faces yield expansion and Japan enters a rate hike cycle.

Asia-Pacific real estate investment is recovering, but investors are becoming more selective as financing costs, supply constraints and rental growth prospects widen the gap between markets.

Ada Choi of CBRE said APAC investment volumes rose about 18% in the first quarter, with Singapore recording more than 170% quarter-on-quarter growth after a major Hongkong Land transaction. Japan and India also posted strong activity, driven by continued demand for Japan and growth expectations in India.

Sigrid Zialcita of APREA said the rebound is being supported by clearer pricing and stronger focus on cash flows, but it is not broad-based. Offices have re-emerged as a preferred sector as leasing improves and investors focus on higher-quality buildings in core locations.

Cap rates are diverging because market conditions are no longer moving in one direction. Choi said Australia is facing a higher interest rate and inflation environment, causing investors to underwrite mild yield expansion rather than compression. Japan, after years of very low interest rates, has also entered a rate hike cycle, limiting further cap-rate compression.

Zialcita said returns will increasingly be driven by rent and asset management rather than price gains. She said cap-rate movements are becoming localised, reflecting each market’s financing conditions, recovery stage and supply outlook.

Investors are also reassessing risk because of geopolitical tension, high oil prices and rising construction costs. Choi said higher construction costs could make it harder to bring new office and retail projects to market, tightening supply in some cities.

Zialcita said investors should move away from headline indicators and assess markets more carefully. India and Southeast Asia could offer upside, especially in trade and supply-chain-related assets.

For APAC real estate investors, the opportunity is no longer simply buying into a rebound. The test is choosing markets where rental growth, asset quality and supply constraints can offset higher financing costs.