APAC cross-border property investments to surge by over 33% in H2 2024

Australia is projected to be the top destination for cross-border investment volumes.

Knight Frank forecasts a significant rebound in cross-border real estate investments in Asia-Pacific for the second half of 2024. According to the firm's latest research, Horizon Report III – Look Beyond the Norm, cross-border investment volumes are expected to rise by more than 33% compared with the same period in 2023. The anticipated increase is largely driven by potential Federal Reserve rate cuts, which bode well for commercial real estate investments.

Christine Li, Head of Research at Knight Frank Asia-Pacific and author of the report, says, “Historical analyses of previous crises, including the Global Financial Crisis, the Chinese economic slowdown, and the Covid-19 pandemic, demonstrate that transaction volumes in the region typically normalise within 30 months. Currently, we are in the 24th month of the high-interest-rate-induced downturn, suggesting the second half offers a prime investment window for undervalued assets. Early indicators of recovery are already observed in Australia and South Korea.”

Australia is projected to be the top destination for cross-border investment volumes in the second half of 2024, representing a 129% increase from the same period a year ago. For the full year, Australia is expected to attract 36% of total cross-border flows.

Neil Brookes, global head, capital markets, Knight Frank, says, "Australia stands out as a prime destination for cross-border investments due to higher-than-average re-pricing compared to the rest of the region. While the adjustment may still have further to go, the gap between valuations and buyer sentiment has narrowed and the outlook for relative returns across asset classes is shifting back in favour of offices. The substantially higher capitalisation rates in Australian offices mitigate near-term risks and pave the way for strong risk-adjusted returns, which attract international investors.”

In Q2 2024, Australia received US$1.9 billion worth of international capital, a 2.5-fold increase compared with Q1 2024, signaling renewed confidence among foreign investors.

The office sector was the main driver of this rise, accounting for 63% of total transactions, highlighting the enduring appeal of Australian commercial real estate to international investors, especially those from Japan. Mitsui Fudosan’s acquisition of a 66% stake in 55 Pitt Street for US$879.4 million was a stand-out transaction. This significant transaction not only highlights the continued interest of Japanese investors in Australian commercial assets but also reinforces Australia's position as a top destination for cross-border real estate capital in Asia-Pacific.

Neil adds, “The second half of 2024 is expected to witness a narrowing bid-ask spread, which should encourage more deal-making activity as cross-border investors reappraise this new outlook. Japanese investors have shown a strong appetite for Australian commercial property assets, exemplified by Mitsui Fudosan’s recent acquisition. This pattern is expected to persist as Japanese firms continue their hunt for higher-yielding assets in overseas markets.”