APAC attracts US$33.4 bil in deals, led by Japan, Australia, and South Korea: Knight Frank

Asia Pacific (APAC) transaction volume registered US$33.4 billion in the first quarter of 2025, representing a marginal decline of 0.8% year-on-year (y-o-y) and a more significant 17.1% drop quarter-on-quarter (q-o-q), according to Knight Frank’s 1Q2025 APAC Capital Markets report published on April 30.

The lower investment volume in 1Q2025 contrasts with the heightened activity in 4Q2024, when interest rate cuts spurred previously cautious investors to deploy capital more aggressively. This surge in activity during the final quarter of 2024 set a high benchmark that proved challenging to match, contributing to the softer performance seen in early 2025.

Nonetheless, investment momentum remained resilient, supported by several large-scale transactions during the quarter. U.S. investment giant Blackstone acquired Tokyo Garden Terrace Kioicho from Seibu Holdings in December for US$2.6 billion. The mixed-use development comprises two office towers, 135 apartments, a 250-room hotel with conference and wedding facilities, and retail space.

This deal marked both the largest real estate acquisition by a foreign fund in Japan and the biggest transaction in APAC during 4Q2024.

Share of cross-border deals up 28.4%

Cross-border investment activity remained robust. The share of cross-border deals climbed to 28.4%, the highest since 3Q2023. Inbound capital doubled y-o-y to US$9.5 billion in 1Q2025, dipping 4.1% q-o-q.

International institutional investors showed strong interest in assets across Japan, Australia, and South Korea—particularly in the office, industrial, and retail sectors—where pricing is widely believed to be stabilising or already stabilising. These conditions propelled these markets to the forefront of regional transaction volumes.

Japan continued to attract significant capital, underpinned by a weak yen, low borrowing costs, and resilient market fundamentals. It was especially true for the office sector, where high occupancy rates—driven by a strong return-to-office culture—and steady rental growth supported investor confidence. Net absorption exceeded expectations, while constraints on new prime supply—stemming from high construction costs and labour shortages—have created a supply-demand imbalance.

Amid ongoing economic and political uncertainty, South Korea’s industrial sector has seen a surge in foreign investor confidence over the past year. This renewed optimism is driven by more favourable interest rates, the sector’s resilience, and increased leasing activity amid a tightening supply of prime assets.

Global investors also showed strong interest in Australian retail assets in 1Q2025, with transaction volume rebounding nearly threefold year-on-year to US$592 million. Renewed economic optimism—spurred by easing inflation and interest rate concerns—has encouraged greater deal activity in the market.

Positive leasing trends and rising retail sales highlight the sector’s resilience, even as consumers face continued pressures. These factors present investors with compelling long-term growth opportunities during the ongoing economic recovery.

Tariff tensions clouding outlook

The Asia Pacific real estate market continues to demonstrate resilience and strong investor confidence, with transaction volumes approaching levels seen a year ago. With US$5.6 billion in deals already recorded at the start of 2Q2025, the market shows promising signs of continued growth.

Interest rate cuts by central banks have enhanced the appeal of debt-financed acquisitions, while stabilising asset prices have spurred increased market activity.

While this positive momentum is expected to build, renewed tariff tensions are clouding the outlook for further recovery. Should tariffs lead to a sustained rise in inflation, the U.S. Federal Reserve may raise interest rates again, putting upward pressure on long-term interest rates and cap rates and potentially dampening global capital markets activity.

If fully enforced, tariffs would likely hit the industrial and retail sectors hardest, as lower consumer spending and disrupted goods movement directly affect demand.

Despite broader macroeconomic uncertainties, the APAC office sector remains comparatively well-insulated, supported by a convergence of structural and cyclical tailwinds. Tier-one cities in Japan and Australia continue to post high occupancy rates and stable rental growth trajectories.