Jones Lang Lasalle: In the first quarter, real estate investment in the Asia-Pacific region increased by 20% year-on-year, while Hong Kong's performance was relatively subdued due to high interest rates

According to data and analysis from Jones Lang Lasalle, commercial real estate investment in the Asia-Pacific region grew by 20% year-on-year in the first quarter to USD 36.3 billion, marking the highest first-quarter investment amount since the interest rate hike cycle began in 2022. Despite facing tariff pressures, the region has recorded year-on-year growth for six consecutive quarters. Investments in all real estate sectors, except for industrial and logistics properties, have increased, reflecting that investors continue to make rational decisions based on objective fundamental analysis.

In Hong Kong, the total transaction amount for commercial properties with transaction prices exceeding HKD 50 million in the first quarter reached USD 850 million, a year-on-year decrease of 17.8%. Affected by high interest rates, the investment market remained relatively quiet last quarter, with trading mainly supported by auction listings. Investors remain cautious about entering the market, as the financing cost of core properties has exceeded 5%, and most investors require a rental yield of at least 6% or higher.

Chen Guozhang, head of the Hong Kong capital markets department at Jones Lang Lasalle, stated that currently, Hong Kong's capital prices for office buildings are still declining due to the unclear impact of U.S. tariffs and interest rate policies. However, this also presents opportunities for investors seeking value-type assets, especially end-users. A recent example is the Hong Kong Stock Exchange's acquisition of a 9-story office building in Central Trading Plaza Phase 1, which is expected to see continued activity from end-users. The industrial property investment market is still supported by low-value transactions, with institutional investors remaining cautious about investing in industrial properties due to the high-interest environment.

Looking ahead at the investment outlook, he indicated that with borrowing costs exceeding investment returns, the investment atmosphere is unlikely to improve significantly in the short term, and transaction amounts are expected to hover at low levels. However, if the U.S. reduces interest rates and the mainland introduces economic stimulus measures, it could boost investment confidence.

In terms of cross-border investment, the Asia-Pacific region recorded an inflow of USD 8.6 billion in overseas funds in the first quarter, a significant year-on-year increase of 152%, reaching the highest level for the same period since 2019. Among these, office buildings, logistics, and residential assets are the most favored by overseas investors. Global capital is making significant acquisitions of office buildings and retail properties in Japan. Despite rising interest rates, various real estate assets in Japan maintain positive yield spreads, continuing to hold the position as the most favored market for foreign investment in the Asia-Pacific region. In the first quarter of 2025, Japan attracted USD 13.7 billion in foreign capital inflows, a 20% increase compared to the same period last year, setting a record for the highest first-quarter amount in five years.

Stuart Crow, CEO of the Asia-Pacific capital markets at Jones Lang Lasalle, stated that commercial real estate investment in the Asia-Pacific region continues to rebound, fully reflecting the robust fundamentals of the region and its strong appeal to global capital. Although factors such as tariffs may cause market fluctuations in the short term, leading to a pause in large transactions, long-term investors seeking stable income and higher returns will continue to invest in resilient commercial real estate to withstand the impact of short-term volatility. The firm believes that the Asia-Pacific region will continue to benefit from cross-border capital inflows.

U.S. tariff policies are expected to impact the economies of multiple countries, including dragging down GDP growth, with markets highly dependent on exports to the U.S., such as Vietnam, Malaysia, and South Korea, expected to be hit the hardest. As growth expectations are revised downward and the risk of economic recession increases, leasing and investment activities in all commercial real estate sectors may be affected. Job growth will impact office demand, while consumer spending will drag down retail sales, thereby affecting the performance of retail leases Logistics real estate is also facing impacts, as reduced trade activities or changes in distribution routes will affect warehouse demand. For example, warehouses around Nagoya Port (the largest cargo port in Japan) may see pressure on asset value and liquidity in the future, as approximately 35% of local auto parts are exported to the United States. However, thanks to structural trends such as rising e-commerce penetration and the expansion of the middle class, internal trade in the Asia-Pacific region remains robust.

Pamela Ambler, Head of Investor Intelligence and Strategy for Capital Markets at Jones Lang Lasalle Asia Pacific, stated that as the growth outlook for the U.S. economy weakens and the dollar trend turns weaker, this poses potential currency depreciation pressure on Asian markets that rely on U.S. exports. This trend may trigger a chain reaction, leading to a decrease in the cost of regional and global capital invested in Asian real estate priced in dollars. At the same time, some funds are facing pressure on capital allocation, while private credit is gradually filling the funding gap left by banks shifting towards high-quality assets, with asset classes such as residential and data centers increasingly favored by lending institutions