In the third quarter of 2023, the Asia-Pacific commercial real estate market investment activity declined by 53.4% year-on-year due to high-interest rates, causing negative risk premiums in some markets. Canada attracted the largest share of outbound investments from the Asia-Pacific region for the first time, surpassing the United States. Canada secured 42% of APAC outbound investments, with the United Kingdom at 26% and Germany at 10%. This shift was accompanied by an eighteen fold increase in deal volumes from APAC to Canada, primarily driven by investments in data centres.
In a historic shift, Singaporean investors channelled more than $11.6 billion into the Asia-Pacific region, outstripping the United States as the leading source of real estate investments in the APAC region for the first time. This change can be attributed to the strength of the Singapore dollar, which encouraged major institutions like GIC and other Government-Linked Firms to explore opportunities in markets such as Japan, China, South Korea, and Australia. Notably, GIC has been consistently increasing its allocation to the real estate asset class, with investments in the US now constituting more than 22.4% of the total inbound investment volume from Singapore.
According to a report by Knight Frank, during the third quarter of 2023, the commercial real estate market in the Asia-Pacific region witnessed a rising interest in assets associated with the new economy. However, investment activity declined by 53.4% compared to the previous year, indicating a significant reluctance among both local and international investors to participate in the current high-interest rate environment.
The reduction in yield spreads has reached a point where certain markets are now facing negative risk premiums. However, industrial properties are benefiting from a combination of factors, including a limited supply of high-quality assets and sustained, long-term demand driven by the e-commerce sector. An increasing portion of cross-border capital from the APAC region is being directed towards data centres and industrial properties.
For the first time, Canada surpassed the United States in drawing the largest portion of outbound investments from the Asia-Pacific region. An eighteenfold surge in deal volumes were observed from the Asia-Pacific region to Canada, reaching $1.02 billion.Canada obtained a substantial 42% share of APAC outbound investments, with the United Kingdom coming in second at 26% and Germany at 10%.
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