According to Knight Frank’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 should bode well for commercial real estate investments.
“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,” said Christine Li, head of research at Knight Frank Asia-Pacific and author of the report.
“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.”
Indeed, 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.
In Q2 2024, Australia received $1.9bn worth of international capital (much of it to the office sector) a 2.5-fold increase compared with Q1 2024, signaling renewed confidence among foreign investors.
International investors are also gradually re-entering the Japanese market, capitalising on favourable long-term prospects, according to the report. Knight Frank expects Japan to attract 23% of total cross-border flows this year.
This is most evident in established players seeking opportunities in prime locations and high-quality assets that offer stable yield spreads. While the living sectors continue to draw investors’ interest, cap rate compression has led to investors’ increased selectivity in multifamily asset acquisitions.
Some investors are expanding their focus to include the senior living sector. This shift is strategic, capitalising on Japan’s demographic trends toward an aging population.
Singapore’s real estate market also continues to demonstrate healthy appeal to global capital, despite a general retreat from both domestic and international investors,
In H1 2024, cross-border investments accounted for 48% of total real estate investment volume, surpassing the 10-year average of 43%. Knight Frank project that Singapore will receive 11% of total cross-border trade.
Despite Asia Pacific Q2 2024 cross-border volume reaching $6.2bn, which is nearly one-third lower than the same period in 2023, the slowing rate of decline suggests to Knight Frank that the market may be approaching its trough.
Combined with the anticipated Federal Reserve interest rate cuts in September and December, these factors contribute to a more conducive investment environment, it concludes.